Taking out a loan is something many of us need to partake in from time to time and though there is no wrong way of doing it, understanding how to get the best deal is important. So, here are 10 tips.
- Shop around
When taking a personal loan out, like with any other financial product, it definitely pays to compare APRs and shop around. The annual percentage rate (APR) will provide you with the real cost of the loan. It takes into account when payments are due, the interest that is payable as well any other charges that may be involved.
Your bank might claim it offers its current account customers a preferential rate. However, it may still be possible for you to find a cheaper loan someplace else.
- Read the fine print
Before applying for a loan, read the fine print to find out if you are eligible for it or not. Some of the best deals have onerous conditions associated with them.
- Consider early repayment charges
At the time you are taking a personal loan out it may appear to be unlikely – however keep in mind that you may want to pay your debt off early. Numerous loan providers will charge you if you want to do this, so it’s a very good idea to first check to see how much that might cost you before applying for a specific deal. If you believe there’s a good chance you will be wanting to pay your loan off early, it might be worth it to find a deal that doesn’t any have early repayment charges associated with it.
- Shop around and compare PPI
There has been some bad press on payment protection insurance (PPI). However, for some people it can still be a useful product. It has been designed for covering your credit card or monthly loan repayments if you can’t meet them because of unemployment or sickness. If you ever think you need to have this kind of protection, it is critical to shop around to get the cheapest deal that you can. Purchasing a policy from your lender directly will most likely cost a lot more than purchasing it from a standalone provider. In addition, there are often a long list of various exclusions that come with PPI policies, so you need to ensure that you completely understand what is covered and what isn’t before you commit to any specific policy.
- Check On Your Credit Rating
If you are planning on applying for one of the market’s leading personal loans, then it is critical to first check on your credit rating. Lenders are required to only offer their ‘typical’ advertised APR to two-thirds of their applicants. So if you don’t have a good credit rating, a more expensive deal may be offered to you than the lower rate that you applied for originally.
- Consider applying for a credit card
Before applying for a personal loan, you should first consider other kinds of credit. A credit card could end up being cheaper, and if the card comes with a 0 per cent introductory rate on purchases it will help you spread out the cost of major purchases interest-free. . However, if you don’t believe you will be able to repay the debt within the time frame of the 0 per cent offer, then you might be better off going with a low rate, long term deal.
- Consider peer-to-peer lending
If you don’t like banks, you may want to consider borrowing money from a peer-to-peer lender like Zopa. This website, which describes itself as being a “marketplace for social lending” connects lenders and borrowers. Applicants are all credit scored. In order to be accepted, you will need to have a decent score. The rates do vary, but a rate of 6.2 percent for a $7,500 loan for three years is listed by Moneyfacts.
- Borrow more
Generally speaking, the interest rate is lower on larger loans. Due to how loans are priced by some providers, at times you may be able to save money when you borrow more. Currently the AA is advertising a $7,000 loan with a five year period at 13.9 per cent APR. The monthly repayments are $159.58. However, if you borrowed another $500, the rate drops down to 64 per cent with a lower $145.76 repayment. Therefore, over the entire 60-month loan term, you will save $829.20 by borrowing an extra £500. The best way to figure out what you’ll be paying is to use a loan calculator.
- Avoid applying for too many loans
Whenever you apply for loans online, a majority of applications leave their footprint on your credit record. Lenders can check for this before they approve your loan. If you have numerous applications showing up on your record, it can make you appear to be in financial difficulties or desperate. This will result in lenders viewing you as having increased credit risk. Therefore, they won’t be as likely to approve your recent loan application.
- Know what the risks are associated with secure loans
Although secured loans are less expensive compared to unsecured loans, there is the risk that you could lose your home if you fail to keep up with your repayments. The equity in your property must be used in order to qualify for a secured loan, which effectively means that the lender can take over your property. Therefore, don’t sign up for a secured loan unless you are 100 per cent certain you will have the ability to make your repayments. This kind of loan is more risky for the borrower and less risky for the lender.