If you’re not familiar with the choice of loans available or the jargon used to talk about them, they can be a bit of a confusing subject!
So, whether you’re thinking of applying for a personal or a secured loan, we’ve pointed out a few things to think about before you start looking.
1. Check your credit report
Look over your credit report before you apply for a loan to make sure that it looks right. You can access your credit file through one of the three leading agencies Experian, Equifax and CallCredit.
As lenders will look at your credit rating while reviewing your application, what shows up on it will have an impact on the amount you are allowed to borrow and at what interest rate. So, have a look through your report and make sure that everything is how it should be. If there’s anything that you think isn’t quite right, e.g. a missed payment that you thought you paid, get in contact with the company in question (their information should be on your report) and ask them to update your file.
2. Shop around
Armed with the information on your credit report you’ll know whether your credit score is stellar, a bit average, or distinctly patchy! So now is the time to look at what loans are available to you with your credit profile. As you would expect, if your credit score is poor, you aren’t necessarily going to be accepted for the cheapest of loans. Do your research and figure out which type of loan will be right for you – a good place to start is here. Another way to do this is to search through price comparison sites like moneysupermarket or gocompare. These let you search through a variety of different loans and compare them against each other. You could even estimate how long a loan will take you to repay by using the This Is Money loan repayment calculator.
3. Have a figure in mind
Don’t go into this process blind, make sure that you have a clear figure of what you want to borrow and try to stick to this. Work out a budget for whatever it is that you want to use the money for and come to a realistic figure of how much will cover it.
This stands for Annual Percentage Rate and, in very basic terms, is how much your borrowing will cost you over the period of 12 months. It’s a legal requirement that the APR is shown on products when you borrow money so you can make an easier, and fairer comparison. Find out what to look out for here.
5. Can you afford the repayments?
Once you’ve found a loan that you think is right for you, you need to make sure that you’ll be able to meet the repayments. If you can’t, you could face penalty charges, meaning you’ll owe even more money, and the payments that you’ve missed will show up on your credit report, so you might struggle to borrow money in future.
If you’re applying for a secured loan against your property, then falling behind or not meeting your payments could put your home at risk.
6. Check the T&Cs
Before you agree to anything, look over the T&Cs carefully. These should make you aware of such things as an early repayment penalty, which is a charge that some loan providers will enforce on you if you try to repay your loan back earlier than planned.
7. Don’t over apply
When trying to secure a loan, only apply for one at a time. Each application that you make will show up on your credit report, so applying for several in a short period of time may give a prospective lender the impression that you’re desperate or in financial difficulty.
8. Consider a credit card
If you’re looking to secure a personal loan for a defined purchase like buying a car, then you may want to think about putting this on a credit card instead – because there are some great deals around. For example one provider is currently offering, to those with a good credit rating, a 0% period that lasts for 23 months on purchases made on the card. If you are able to pay off the balance within two years that is going to be cheaper than any personal loan on the market.
You should always aim to pay back as much as you can afford each month and try clear the card within the 0% period, otherwise you may be hit with high interest rates once the offer ends.