Whether you are juggling unexpected costs, managing debts or looking to make an exciting large purchase, it is common to take out a personal bank loan at some point in life. However, when you decide to take out a loan it is important to choose a plan that will allow you to get the most out of it. These comprehensive tips are here to help you find the right loan deal for your individual needs, and ensure you don’t pay over the odds for it.
Know the amount you want to borrow
The best place to start when finding a personal loan is to calculate the specific amount of money you will need to borrow. What is it that you need the money for? How much will it cost? How long will it take you to comfortably pay it back? If you start with a specific figure in mind, it will make the process of comparing lenders much easier. This is because different lenders come with varying charges just to borrow the same amount.
Know your credit score
Your credit history will be key in the process of acquiring a loan. Your credit history affects the interest rates available to you and the loans you can take. Generally, the higher your credit score the cheaper the rate.
Those with lower credit scores are considered higher risk when it comes to borrowing, especially if you have had County Court Judgements or have had defaulted payments. This usually means that your loan deals will come with significantly higher APR. Check your credit score through an established credit reference agency such as Experian, Equifax or Callcredit.
Compare lenders and their rates
There are many lenders on the market, all offering a variety of costs and rates. The smartest thing to do is to look at as many reliable options on the market as possible, and compare the deals on offer to find the right one for you. Many people seeking a personal loan can simply look at the top 10 loans available, this is a great place to start but most experts recommend that you extend your search further beyond these 10 loans.
When comparing loan providers, pay close attention to the loan rates on offer and the costs of the specific amount you are hoping to borrow. The representative APR quote will take into account costs that include interest and added charges. However, the representative rate is not available to all prospective borrowers and often only applies to fixed amounts of money. Before going ahead with your chosen loan provider, take a look at their application criteria and ensure you and your credit score fit the bill.
If your credit score is not so good and prevents you from accessing the very best loan deals, then there are a number of websites and companies that can assist you to find a loan that you are likely to be accepted for. Note that these loans are likely to come with a higher APR – so it is important to be certain that the repayments are still affordable for you.
Choose your lender wisely
Many prospective borrowers make the mistake of taking out a personal loan with the bank they already hold a current account with. This is an easy mistake to make, as you already have a certain level of trust and loyalty with your bank. However, this will usually prevent you from achieving the best rates on the market. A quick look on the market of potential lenders will reveal loan providers that are looking to attract new custom, and therefore offer lower APR and sometimes more flexible terms for your loan.
Consider the right loan term for you
The loan term means the length of time you will have to pay your loan back. This is a really important factor to consider to ensure that you stick to the terms of your loan and feel comfortable with your repayments.
You have already decided on the amount of money you will need to borrow, now consider how long you will realistically need to pay it back. Longer loan terms mean that you will have smaller monthly payments, but longer loan terms also come with more total interest. Choose a loan term that offers a good balance between comfortably meeting each monthly repayment, and not paying too much overall interest.
Choose a fixed interest rate
Most personal loans now come with a fixed interest rate, but it is important that you check this is the case before going ahead with yours (always read the small print). A fixed interest rate means that the interest on your loan cannot rise throughout your term, helping you continue to meet your repayments each month and avoid any unexpected costs.
Consider your alternatives
This will come down to how much you are hoping to borrow, but a personal loan might not be your only option. Some credit cards offer interest-free purchases, which could be more suited to your needs if you require a loan between £500 and £5,000. This is a much more cost-effective option, as loans this size will usually incur higher rates of interest. 0% purchase cards will allow you to borrow the amount you require and not incur any interest until after the introductory period.
Consider if you need PPI
Payment Protection Insurance (PPI) offers protection for if you are suddenly unable to repay your loan due to a loss of income. This is a reassuring option for those that need it, but it can also be an unnecessary added cost. Many loan providers offer PPI as an add-on, however, this is usually not the best deal. Decide whether you would benefit from the reassurance of PPI or not, and then shop around for the best deal.