Tag Archives: Loans

Four Things You Should Be Aware Of Before Securing A Personal Loan

Personal loans could be like fresh air when you struggle financially or you fall behind, but they also require a bit of financial discipline to ensure you make as much as possible out of them. There are, however, a few misconceptions about personal loans – here are a few small details some people may not be aware of.

Borrow as much as you actually need

The general idea is fairly simple – do not borrow more than what you need. Also, try to repay it as quickly as you can. You need to do a budget and base the loan request with your financial capabilities in mind – think about what you are comfortable able to repay back.

Consider the borrowing time. When borrowing over a long period of time, you can spread the debt and get lower monthly payments. But on the same note, interest rates will go higher. Double up the distance and the interest could even tripe up.

Credit card loans could be cheaper if you need less money

It is always worth checking all your potential options before making a final decision. While anything over £1,000 may look like an actual loan, some credit cards could give you up to £5,000. Most of them will go up to £3,000 though – assuming you have a decent score. If you need to buy something that costs more than that, you are probably looking for a loan.

However, if you can get what you require with a credit card, figure out what the monthly payments would be, as well as the overall cost of the loan. Believe it or not, a credit card loan could sometimes be a better option.

Your income is more important than your credit

Your credit history is important, indeed, but most people believe this is the only factor determining how much you can borrow. In fact, the credit history will most likely determine whether or not you will be given a loan. It shows how disciplined you are and how you handle your finances. At the same time, the credit history also helps the lender decide on a good deal. If you have a good record, you will get a good rate. If your credit history is bad, you might need to pay a higher rate because the lender takes a higher risk.

On the other hand, the income determines how much money you will get. This is vaguely based on your income, your mortgage or rent and other similar factors – food, car, insurances, number of dependants, your location and so on. While you might have a perfect record, you could still be surprised with the final offer if your disposable income is not good enough for the lender.

It may cost less to borrow more

Bizarrely, you could end up with a great deal if you borrow more money. It is a small thing most people overlook because they fail to work things out. Generally speaking, the primary advice is to borrow as much money as you need – the less money you need, the better. However, a slightly bigger loan will decrease the rate at set thresholds. What does it mean?

You could borrow £4,900 at 8.2% and pay £5,990 back. You could also borrow £5,000 and get a rate at 3.2%, meaning you will pay £573. You borrow £100 more, but you pay £573 less. If you borrow close to a threshold (£7,500, £5,000, £3,000 or £2,000), it pays off trying out all kinds of scenarios upfront.

In the end, personal loans can be quite efficient if you take advantage of them and research the market for the best deal. A bit of financial education will help you secure a great deal, rather than having to agree for any random deal you can get.

Four Things You May Not Know About Personal Loans

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.