Whether you are planning home improvements, a holiday or a wedding, you may have no other option than to look for affordable personal loans. The trouble is there are just so many products on the market today, and trying to wade through a sea of small print can be a complex, time-consuming affair. However, by narrowing your choices down to just a few, and performing a few checks of your own, you could save yourself hundreds of pounds in interest charges.
1. Borrow only what you need, and compare lenders based on your required loan amount
Comparing loan deals can get complicated because of the way providers utilise sliding charges. For instance, one lender may offer a beneficial interest rate if you borrow a specified amount or over a specified period. Decide exactly how much you need, and use the online loan calculators provided by lenders to work out the cost of borrowing exactly what you need. Some lenders will be prepared to offer as much as £25,000 on an unsecured basis, and the differences in interest charges when you’re borrowing such a large amount of money can be significant.
2. Investigate the charges and conditions applied to the specific loan term you require
Most low interest loans will be repayable over a period of three to five years. However, there are specialist products that can be repaid over a period of anything between one and five years. Try to avoid the temptation of repaying your loan over a longer term than is necessary in exchange for lower monthly repayments – you’ll pay more in the long run. Interrogate the small print of any loan offer you receive, and check that early repayment charges and settlement fees aren’t overly punitive. Too many consumers opt for the longest terms available without calculating the cost of borrowing over the course of the entire arrangement.
3. Shop around for the best deal
It goes without saying that comparing like-for-like deals will help you to find the best possible deal for your circumstances. However, beware of the representative APR – this is not always an indication of the interest rate you will be charged when taking out a loan. Only by obtaining a full quote based on your personal information can you be sure how much a loan will end up costing you. There are some price comparison websites that can help you with your search, but not all lenders are included in their search results, so look for recommendations on discussion boards and online communities too.
4. Beware of the hidden charges that lurk in the small print
Trustworthy lenders that are conscious of their brand image will usually not apply onerous charges for early settlement of a loan – some do not even charge a fee at all. But there are firms who will charge significantly more, so you should make sure that you get a full schedule of charges before you commit to anything. Check that the late payment charges aren’t excessive, and that your loan is a fixed-rate product. And although PPI legislation has put a stop to underhand practices, double check that you aren’t being charged for cover that you simply don’t need.
5. Rectify any credit issues you may have before applying
Checking your own credit file before applying for a loan has the potential to save you hundreds of pounds in interest. There may be inaccurate or out-of-date information held against you, which could push up the cost of borrowing needlessly. Work with the major credit reference agencies to update your credit history, and you might be able to take advantage of significantly lower interest charges.
Taking out a substantial loan over the course of several years represents a huge financial commitment that could have consequences for your future. Do your research and select the product that is right for you, and you could save yourself a small fortune over the next few years.
About the Author
Nick Harding is Founder and Chief Executive Officer at Lending Works. Lending works is a peer-to-peer lender that matches thoroughly underwritten personal loan borrowers to shrewd lenders so both receive a much better deal. Lending Works is the first peer-to-peer lending company to have insurance that protects lenders against borrower defaults and fraud. For more information, please visit – www.lendingworks.co.uk or follow Nick Harding on Google+
*Image courtesy of Flickr