Choosing a loan
There are a number of factors that need to be considered
when taking out a loan, aside from ensuring that the lender
is a reputable company with a consumer credit lending license:
Interest Rate
Obviously, the lower the interest rate you have to pay,
the better.
Lenders usually operate a system of tiers, where the interest
rate gradually falls when the amount you wish to borrow
rises. The best rates are usually available when the amount
you are seeking to borrow is in the highest tier of borrowing.
Not all rates will be available to all borrowers. The
best deals are only usually open to those with an unblemished
credit record. If you have CCJs or other 'bad credit events'
then you may find that some of the best deals are not available
for you.
Be aware that different lenders calculate the headline
rate of interest in different ways, meaning that two seemingly
identical rates of interest can lead to different repayment
levels. For the best comparison of different secured and
unsecured personal loans, make sure you refer to the Annual
Percentage Rate, which is a standardised method of calculation
and which will eliminate the distortions.
Repayment Period
The longer the term of the loan, the lower your monthly
repayments will be. However, a longer term means you are
paying interest for longer and will almost certainly mean
that the cost of borrowing is actually higher. You should
try and choose a repayment period that means your repayments
are towards the upper end of what you can comfortably afford.
Repayment penalties
Make sure you read the small print, as some lenders will
penalise you if you wish to make additional payments during
the course of your loan term. If you have spare cash, then
repaying your loan early can save you quite a lot of money
in the long term, so it is probably unwise to select a loan
that penalises you for doing this, particularly when there
are so many loans available that let you repay the debt
early.
Fees
Some lenders charge a fee for application to the loan scheme.
Again, most lenders do not operate in such a manner, so
it is not normally worth choosing this type of deal, unless
you have a particularly bad credit record and are unable
to find a loan elsewhere.
