10 top tips for getting a personal loan

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10 top tips for getting a personal loan

10 tips for getting a personal loan

 

There is now a price war taking place with personal loans. This week Derbyshire Building Society has thrown down the gauntlet to rival providers by launching a rate of 5.6 per cent on loans between £7,500 and £14,999. This has been said to be the lowest headline rate since November 2006. Although the Bank of England base rate has been at an all-time low of 0.5 per cent for the last three-and-a-half years, loan rates have remained high, until recently.

 

With loans becoming more competitive here are 10 tips for you to think about when picking a loan.

 

First tip is to shop around- when it comes to most things it is better to shop around as you may find better deals that way. In the case of loans shop around and look at the loans APR, this is because it shows the true cost of what the loan would be. Your bank may say it offers preferential rates to its current account customers but you might still find there are cheaper loans available elsewhere. For example, existing Natwest customers are offered a rate of 7.9 per cent – 2.3 per cent above the rate offered by Derbyshire BS.

 

2, Check the small print- Before applying for a loan you should read the small print to check you actually eligible to receive the loan. Some of the best loans can have ridiculous conditions. For example Sainsbury’s Bank offers a loan rate of 5.6 per cent, for example, but applicants must have a Nectar Card and have used it at Sainsbury’s in the past six months

 

3, Think about early repayment charges- It may not seem like a likely option for you when you take out a loan but you may have the chance to pay off the loan early. Many loans companies will add a charge before you can do so, if there is a chance of you paying your loan off early it is best to look for a loan that comes without early repayment charges.

 

4, Shop around for PPI- This has had some bad press however it is useful for some people. It is designed to cover your monthly loan or credit card repayments if you are unable to meet them due to sickness or unemployment. If you decide you need this type of protection, it’s vital you shop around for the cheapest deal: buying a policy direct from your lender could still cost you far more than buying from a standalone provider.

 

5, Check your credit rating- It is very important that you check your your credit rating. If your credit rating is not great it may mean lenders offering you a more expensive deal than the lower rate you would get if you had already applied.

 

6, consider a credit card- If you think you will be repaying the loan back quickly it would be a better deal to get a credit card. If there was one with a 0% introductory offer this would be a cheaper option as you would not have to pay any interest back.

 

7, check out peer to peer lending- For this there are sites such as Zopa which is the marketplace for peer lending. However you do need a decent credit score to do this is this may not be an option for some lenders.

 

8, borrow more- With some personal loans it is cheaper to lend more, Currently, a £7,000 loan over five years from the AA is advertised at 13.9 per cent APR with repayments of £159.58 a month. But if you were to borrow an extra £500 the advertised rate drops to 6.4% APR and the monthly repayments are lower at £145.76. So borrowing the additional £500 will actually save you £829.20 over the full 60-month term of the loan.

 

9, don’t apply for too many loans- When applying for a loan you leave a footprint, on your credit record, if there is a lot of these on your record it could make you look like you are in financial difficulty. As a result of that you are more likely to be declined.

 

10, know the risks of secured loans- these are cheaper than unsecured loans, however with these you are at risk of losing your home. Due to this it is best not to sign up unless you are 100% sure you can make the repayments. This loan is more risky for borrows and less risky for the lenders.

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