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Choosing a UK Personal Loan

Making the decision to take out an unsecured personal loan is an important one for several reasons. Whatever you’re using the money for is likely to be an important financial investment, whether it’s home improvements, a car, debt consolidation or even a family holiday you’re planning to invest a significant amount of money in it.

Naturally one of the benefits of a personal loan is you can generally use the money for whatever you want, therefore you may not fall into any of the above categories. Additionally it’s a financial commitment that will last several years and you want to make sure you get value for money and good service over the course of that time. It’s important to spend as much time planning for and researching the best product to suit your circumstances as it is planning how you’re going to spend the money.

Starting Comparisons of Loans

The first thing to consider is whether an unsecured personal loan is what you are actually looking for. Personal loans are in most ways a flexible product, as previously stated you can generally use them for any purpose. If the amount you plan to borrow is smaller than would generally qualify for low APR deals or you wish some flexibility in how much you repay and when it may be worth considering borrowing against a credit card or overdraft instead. Bear in mind that while personal loans usually have a more strictly fixed repayment schedule than credit cards or overdrafts, this can be helpful in planning your financial commitments. Again if the amount you wish to borrow is quite large you will probably have to consider a secured loan, which means putting your home or other assets up as security and can effectively be seen as a second mortgage.

Length of Repayments

Once you’ve decided that an unsecured personal loan is the most appropriate form of finance for your circumstances the most important thing to consider before you even start looking at what loan deals are available is how much you wish to borrow. Most loan deals will apply to loans of a certain amount and this can vary between providers. Some providers such as Alliance and Leicester, Cahoot and Lombard Direct offer their typical APR to loans over £5,000 and others such as Bank of Scotland offer their best APR on loans of £7,000, Tesco have raised this to £7,500. Once you’ve ascertained how much you wish to borrow you can identify which loan companies will provide the best deal. While considering how much you wish to borrow its also worthwhile to consider things like how long a period you wish to repay the loan over as different loan companies may provide you with different repayment periods. Two examples are AA who offer repayment periods of between 1 and 5 years and Tesco who offer repayment periods of between 1 and 10 years.

Personal Circumstances

Obviously everyone’s personal finance circumstances are different and this will have a bearing on what loan company to chose when applying for a personal loan. Some companies will be quite selective about who they lend money too, whereas others may be more flexible but in turn charge higher rates of interest. A poor credit record, being self-employed or simply not having much of a credit record for loan companies to judge you against can affect which companies will be open to lending you money and possibly also the rate of APR they offer you.

Therefore it’s important to bear this in mind and shop around for a reputable company with a good rate of APR if you find yourself in a less than advantageous situation when it comes to applying for a loan. Additionally if you feel you have been unfairly turned down for a personal loan you can ask why and while they are not obliged to divulge the reasons behind their decision most companies will be forthcoming. It may also be worthwhile to investigate your credit record to ascertain if everything is in order or if maybe poor credit is related to something unconnected like a previous tenant.

Choice

By the time you’ll have reached this stage of choosing a personal loan you’ll probably want to start looking around at the different loan companies and what they can supply you with. This is a good thing but it is incredibly important to shop around when choosing a loan partly to ensure you get the best deal in terms of APR and a repayment period to suit you but also because there are still some important considerations that should affect your choice.

Loan Incentives

Different loan companies will offer different services when you sign up to a personal loan with them. Bonuses such as repayment holidays either at the start of the repayment period or during it or a quick transfer of the funds into your account which may be free or come at a small charge. Generally these kinds of bonuses will be well advertised and easy to compare between companies should you decide this is a factor worth considering for you.

However what is probably less well advertised are the penalties associated with personal loans. Some loan companies will charge an arrangement fee for taking out a personal loan. You may decide its worth it if the loan meets your requirements but its still worth being aware of while your at the stage of deciding what loan company provides the most appropriate deal for you.

Another important consideration is whether you may like to repay more than your standard payments at any time or clear the loan ahead of schedule. This could be a great decision for you, maybe you’ve come into some money, had a promotion or are simply managing better than you anticipated. Many loan companies will charge significantly for early repayment of a loan which could reduce the benefits of repaying early and in fact render the loan far less value for money than it seemed at the time. Choosing a company which doesn’t employ early repayment penalties may be a better choice but as with an example for Morgan Stanley they may then charge higher rates of interest.

Payment Protection Insurance

A final consideration when taking out a loan is payment protection insurance. This is often offered alongside a personal loan and it can be tempting after all your hard work and shopping around to just accept the loan company’s policy. Loan company’s can charge quite significantly for this insurance and it can add a tremendous amount of money to your overall loan cost. Cahoot offer a cheaper form of payment protection insurance or buying it direct from a company such as Pay Protect can work out even cheaper.

More Information:

  • Effective Loan Shopping - more information about choosing the best personal loan available
  • Secured v. Unsecured Loans - What are the differences between secured and unsecured loans? Essentially, whether or not the loan is secured by property in the event the borrower defaults on the loan.
  • Deciding on a Loan - What is the one thing that all financial advisors tell their clients before committing to any financial agreement? It is the most basic rule of all commerce; do you homework and shop around.
  • Online Loans - How Popular and Safe Are They? - With the development in technology allowing for safer online transactions coupled with high-speed Internet connections, many people are conducting loan research from the comfort of home. The use of online loan applications is becoming more and more popular.
  • Switching loans can save money - It is all too easy for consumers to become complacent when it comes to finances, and loans are one example of this. Many people remain with the same lender or the same loan set-up simply because it's easy and familiar.

 

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