Things to consider when taking out a personal loan
If you need to borrow some money from a bank then unsecured personal loans can provide a solution, but there are a number of factors that you should consider before approaching a lender.
Firstly, the amount you want to borrow is important. Unsecured personal loans can be more cost-effective the more you borrow so it is worth calculating interest and monthly payments to make sure that it is affordable and will not work out to be overly expensive in the long run.
It is also worth remembering that your own personal circumstances will have an effect on the amount you can borrow, the level of repayments and the interest charged.
What will lenders look at when I apply for a loan?
Most lenders will look at your credit history in order to determine what level of interest you can get on your loan.
This is known as risk-based pricing and it means that you may well not receive the rate advertised by the loan provider.
However, it is worth remembering that the financial institution must provide the advertised rate to two-thirds of borrowers, so it is not something to be overly worried about if you have a relatively good credit history.
If you would prefer to avoid a credit check when enquiring about the loan rates available to you, then you should ask providers to give you details of their loans which do not use risk-based pricing.
How can I ensure that I get a good loan rate?
It is essential that you compare loan quotes before opting for a specific provider or product.
One easy way to do this is to visit price comparison sites, where you can search for loans in a number of different ways.
There are simple comparison tools which provide a list of the advertised rates from the largest financial services providers in the UK.
Loans are usually compared based on their annual percentage rate (APR), which includes the interest payable on the loan, as well as any charges or fees you may be liable to pay.
Alternatively, you can search for a more tailored loan comparison quote by entering details such as the amount you want to borrow and the timeframe for the loan.
Providing additional information, such as whether you own a home and the institution that you currently bank with, could mean that you get lower rates from certain providers.
For example, your bank may offer special rates to its existing customers, while owning your own property will mean that lenders view you as a safer bet.
Once you have done a basic search to compare loan quotes, it is vital that you carry out a proper comparison based on your individual financial circumstances to ensure that you really are getting the best rates.
Other considerations with personal loans
As well as comparing APRs, it is also worth checking whether there are any early repayment fees.
While this is not necessarily an important consideration for everyone, if you think that you may be able to pay back some or all of your loan early, then it is certainly worth finding out.
Some lenders will charge a penalty, usually of one or two months' interest. However, there are financial services providers who do not penalise you for early repayment of your debt, so it is worth shopping around for them if you think that this could affect you.
Another thing to watch out for when looking to compare loan quotes is whether the provider is trying to sell you payment protection insurance (PPI) in addition to the loan.
PPI is often expensive and unnecessary for many borrowers and has frequently been mis-sold to consumers over the past few years.
In the past, PPI was often sold as part of the loan, which meant that borrowers were charged interest on the PPI premium, as well as the money they borrowed. Although lenders can no longer sell PPI as part of a loan, many will still try to sell it as an add-on product.
Although lenders can no longer sell it as part of the loan, which in the past meant that borrowers were charged interest on the PPI premium as well as the money they borrowed, many will still try to sell it as an add-on product.
If you think that PPI could be applicable to your circumstances, make sure that you read all the terms and conditions thoroughly to check that it will pay out when you need it to.
You should also shop around between different providers as your lender may not be offering you the best deal.
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