Personal loans can be used for just about purpose and if you are planning to buy a new car, getting married or wanting to go on a special holiday then you may well be able to fund these plans by taking advantage of a finance deal that is just what you need.
The first thing to do before you start applying is to ask yourself the following seven basic questions and use the answers to work out the best financing options for your needs.
The amount you need to borrow may seem like a simple question to answer but the actual sum you need to raise through finance will affect what loans are available to you and could also have an impact on the level of interest rate that you pay.
You don’t want to borrow too much but at the same time it would not be a good idea to underestimate the amount you need, which could leave you struggling to make up the difference at some point. Set a realistic figure that you know will be sufficient and is within your means as this will not only be the prudent approach but it will also help you to search out the best deals based on how much you need.
You need to find the right balance when it comes to working out how long a period you want in order to repay the loan. A longer period will reduce your monthly payments and might even attract a lower APR but you will probably pay more overall in interest as you are borrowing the money for longer.
There is of course a fundamental difference between secured and personal loans and your decision as to which one to choose should be based on the amount you need to borrow and your understanding of the risk involved when you secure a loan against your property.
There is normally a minimum loan amount for a secured loan so if you only need a relatively small loan then a personal loan would probably be your better option anyway.
Flexible or fixed?
With a fixed loan you will be comfortable in knowing that you will be paying exactly the same amount each month for the duration of the loan whereas a flexible loan will give you a greater degree of flexibility as the name suggests, but you should also remember that the interest rate may fluctuate as well so you need to check the terms if you are considering a flexible loan.
What fees are there?
Always check what fees are attached to the loan product you are interested in as they may want to charge fees for transferring the money into your bank account and also charge you an arrangement fee. These all add to the cost of your loan and charges will vary between lenders so make sure you check what fees you might have to pay before you finally agree to take the loan being offered.
The vast majority of lenders have strict eligibility terms and they will often base their decision as to whether they want to lend you any money on major factors such as where you are a UK resident, have a regular income, if you have a current account, how old you are and also how good your credit rating is.
You should always check the eligibility criteria before you apply for a loan so you know whether you have a good chance of succeeding in your application, as too many applications on your credit file simply make it even harder each time to get accepted as it gives the sometimes false impression that you are desperate for the money.
Check the APR
Sometimes lenders don’t always give you the rate that they advertised and you may be asked to pay a higher APR if they consider you to be a slightly riskier proposition. Check the APR matches the one you expected and ask for an explanation if it is different.
If you ask these seven basic questions then you should stand a better chance of getting the loan that you want.
Molly Perkins appreciates the complicated web of personal money management. She enjoys simplifying the situation so the everyday person can make smarter financial decisions to achieve long and short term goals.