It’s very important to know what you’re looking for when you’re in the market for a personal loan. If you enter into a personal loan agreement without fully understanding it, it could lead you to financial ruin.
Here are some things you should look at when opting for a loan:
The Interest Rate
Most loans come with an advertised interest rate (also known as the representative APR). This is typically the standard interest rate that is given to individuals that opt for that loan.
However, you may not always get the same interest rate as the representative APR. The interest rate you’ll be offered will depend on what type of loan you’re getting (secured loan, unsecured loan, mortgage loan, homeowner loan, guarantor loan, etc.), how long the duration of your loan is going to be and what your credit score is.
Be sure that before you apply for a loan, you check what the interest rate you’re being offered is.
Interest rates are important to know about as they have a huge effect on the total amount repayable to your lender. High interest rates will lead to you paying a much higher amount of money than what your original loan amount was.
The Term (or Duration)
Of course, the duration of your loan is going to matter because it will determine the amount of time over which you’ll be paying it off.
It may seem tempting to have a long term so that you pay a lower amount each month but in reality, the longer term you’ll have, the more you’ll be paying off in interest overall.
Thus, when it comes to loan terms, it’s better to have them as short as you can afford them to be.
Compare Loans and Lenders
This goes without saying but you should always compare loans offered by different lenders and compare them in order to get the best possible deal for yourself.
Make sure that lenders you’re approaching are authorised and regulated by the Financial Conduct Authority (FCA).
If you have a bad credit score, your option may be a lot more limited. You may have to look at specialised lenders and the interest rates you’ll be offered will be a lot less competitive.
It’s important to find the right balance between a lender who’s offering you a good deal and them having requirements which mean that you’re application is likely to be accepted.
When you want to borrow money and are looking for a loan, it may be tempting to apply to several lenders. I highly suggest that you avoid doing this as this will affect your credit rating in an extremely negative way. Always choose a lender beforehand and only apply to that single lender.
Some lenders may require to do a credit check on you before they provide you with a quote. If this is the case, make sure you ask them to do a “soft search” as this does not show up on your credit file.
Be Aware of What You Will Owe
This ties back up to the rate of interest but it’s important for you to calculate what the total amount repayable by you is going to be.
Of course, it’s going to be more than the original loan amount but you have to calculate whether it’s worth it to get the loan or not. You don’t want to be paying 90% or sometimes even 100% more than what you originally borrowed.
You can check out a loans calculator online which can help you determine how much you’ll be paying back depending on your rate of interest and your loan duration.