You want to borrow some money and you know the basics already. You need to borrow as little as possible – just what you need. Shop around and never settle for the first deal you get. Check your credit score and fix the history if you see any incorrect entries. This is common sense, but how do you avoid disappointment? Everything looks perfect, yet you cannot secure a very good deal. So, what else should you know?
Loyalty means nothing
When thinking about a personal loan, you want to stick to the bank you have a current account with. It makes perfect sense – you feel comfortable with it. Plus, this bank has access to all your finances. You know that you can handle this loan and based on your banking history, your bank should figure it out too. However, all this loyalty does not guarantee the best deal out there.
In fact, you are more likely to get a better deal from a lender who might want to attract new customers. The thing with banks is that most of them require you to have an account with them in order to get a loan, so you might need to go through this procedure first. Some of the benefits could include more flexibility when it comes to the actual terms, as well as a lower APR.
The lack of loyalty from banks is another good reason wherefore you have to shop around.
The loan term could make the difference
How long do you need to pay the loan back? This is one of the most important aspects to consider. The so called loan term tends to make the difference because it affects the total pay. For example, if you expand it over a long period of time, you will obviously pay more in the interest.
But on the same note, a long term also implies smaller monthly payments. At this point, you need to determine whether you want more flexibility with your monthly finances or you need to finish your debt as quickly as possible.
Get a fixed interest rate
Having a fixed interest rate gives you a bit of peace of mind. It also helps when planning your monthly expenses. In other words, your monthly payment stays the same throughout the loan term. Even if general interest rates change, yours will stay the same.
These days, many personal loans come with fixed interest rates, but this is not a general rule. In other words, you should still double check the fine print before sending your application.
Consider other options
The amount of money you need to borrow will determine how financially efficient your loan is. Sometimes, the terms associated with a personal loan could be outweighed by the terms coming with a credit card. After all, you can avoid the interest rates for a while if you use a credit card. This option is handy if you need to borrow a small amount of money – usually less than £5,000. Small personal loans will attract a high interest rate after all.
It is all about getting a good limit, not to mention a long introductory period. Stick to the monthly payments and try closing the debt before the introductory period is over. This way, you basically get a loan with no interest whatsoever.
In the end, personal loans can be challenging, but there are a few ways to plan them accordingly. Avoid common misconceptions and analyse all your potential options upfront. Other alternatives might come in handy too – take your time to shop around and make a good decision.