Tag Archives: Secured 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.