If you’re thinking of a personal loan, here’s what you need to know so you can find the best one for you.
1. Don’t accept the first offer
When your bank or building society offers you a rate, don’t accept it off the bat. Find the best deal for you by comparing APRs - annual percentage rates - using a comparison website. Comparing interest rates alone won’t show you extra expenditures like arrangement fees, whereas an APR will. Make sure you know everything you’ll be paying before you sign up.
2. Ask for a quotation search
Once you’ve found a lender you like the look of, ask for a quote before you apply so you aren’t surprised by any charges. They may ask to do a credit reference check. If they do an application search, a mark will be left on your credit record. A top tip is to request a quotation search or soft credit check instead, which won’t leave a mark. You can also check your own credit rating before applying through reference agencies like Experian, Equifax and Callcredit though some do charge a fee.
3. Check the interest rates
Check the interest rate is fixed not variable, so it doesn’t go up while you’re still paying out. Not everyone gets the represented interest rate so end up paying more, which is why it’s important to get a personalised quote before you apply – especially if your credit rating could cause an issue. Choosing how long you’d like to repay the loan will also affect interest: the longer you’re borrowing, the more you’ll pay in interest overall. Also bear in mind that you can usually pay off a loan in full at any time but the lender may charge for this.
4. Loan over debt
It can be sensible to get one loan to cover several debts, instead of spreading them across expensive credit cards. This can reduce the cost of your monthly repayments overall – but only if you can pay it back in enough time to balance out the interest rate. Make sure you do your maths before you agree to anything.
5. Peer to peer
A popular loan choice is peer to peer (P2P) where if you want to borrow money, you’re linked online to someone who will lend it. Some have no minimum amount, which is good if you want to borrow small. One big plus is that the interest rates are often lower. If you have a good credit rating, P2P is worth looking into. They’re listed on most comparison sites.
For more stories, tips, advice and competitions on budgeting, saving, and spending wisely, make sure to grab a copy of the brand new issue of Take a Break Savers.