Looking for a loan? What to be aware of
There are a few things to be aware of when searching for a loan. Here are TotallyMoney’s top tips to make sure you find the best loan available for your requirements without paying for any unwelcome extras.
You may not qualify for the best APR
Lenders advertise their loans by the ‘typical APR’. This is the interest rate that they offer to 66% or more of successful applicants. The better your credit rating the more likely you are to be accepted at the typical APR; but if your credit rating is less than perfect it is more likely that you will be declined. This can cause damage to your credit rating, as a series of declined credit applications makes it even less likely you will be accepted by other lenders. The best way to avoid this rejection spiral is to apply for a loan product that you have the greatest chance of being accepted for – that may mean opting for a product with a slightly higher APR, as these products will have slightly less stringent lending criterion.
Remember that there’s more to a loan than the headline APR
The headline APR on a loan product might be very competitive, but are there any ‘extras’ or restrictions that make the product unsuitable for your requirements? There is no point in paying extra for things you don’t need, such as the ability to take payment holidays if you don’t need them. The best way to compare loans is to compare the total loan cost of each product and go with the product that will allow you to borrow money the most cheaply.
Flexibility can be expensive
Flexibility in a loan can be a great benefit if you need it. Many lenders allow one or more payment breaks each year of the loan term; this might give you a welcome break in the short term, but you will pay more for the loan in the long run. Interest will continue to be charged during the break, and by taking a month off from payments you are extending the loan term, which means the total loan cost will increase and you will repay more interest overall. Only take payment breaks if you really need them in order to keep your loan as cheap as possible.
Early repayment penalties
If you plan on making regular overpayments on your loan, or want the option to repay your loan early, make sure the loan you choose does not have early repayment penalties. Early repayment penalties can be expensive, so check out the terms and conditions on your loan if this option is important to you.
Payment Protection Insurance
Many lenders will try to convince you that you need to purchase payment protection insurance (PPI) when you take out a loan. The insurance can come in handy if you become ill or unable to work, as your repayments will be covered. However, more often than not the insurance is not used at all, and it can add a substantial amount to your monthly payments, so consider your circumstances carefully before taking out a policy.
Please note: this website, and the articles and information within it are based on journalistic research. It does not and should not be construed to constitute financial advice. Any information should be considered in regard to specific circumstances. All tips are followed at your own risk and should be followed up with your own research. For more please refer to our terms and conditions of use.