If you’re looking to take out a personal loan I recommend billige forbrukslån but you want to get the best deal possible. To do that, please take a couple of minutes to read the quick tips below – they could save you a lot of time and money.
Personal loan rates have finally started to tumble. So if you do need a loan, now is a good time to get one. But make sure you’re aware of the 10 points below before you sign on the dotted line…
1. Check you wouldn’t be better off using a credit card
Personal loans tend to be expensive if:
- You don’t need to borrow much money, or
- You only want to borrow money for a short period of time.
So if you want to borrow less than £2,000, or borrow for less than a year, then you’ll almost certainly save money by using a credit card instead.
Remember that 0% credit cards charge you NO interest for up to 18 months.
2. Check your credit rating
The better your credit rating, the more likely you are to be accepted for a loan or credit card.
This is especially the case if you are applying for a market-leading, low rate loan.
3. Shop around for the best rate…
It’s common sense to shop around for a loan, but many people just go straight to their bank.
While some banks offer preferential loan rates to their customers, you can normally get a better rate elsewhere. (Loyalty doesn’t usually pay when it comes to banks!)
Whether you go to your bank or not, make sure you do your research beforehand on current loan rates so you don’t get ripped off.
Getting up to speed on the best rates only takes a second – a good place to start is by having a quick look through a loan comparison tool, which collects rates from across the market and tells you all you need to know on one page.
The main thing you’re looking for is the APR (Annual Percentage Rate). This tells you how much you’ll be paying the loan company to borrow their money. The lower the APR, the cheaper the loan.
To see exactly how much you loan will cost in pounds and pence, put your loan details (the amount you want to borrow, how long you need the money for, and the interest rate) into this loan calculator.
4. …but be careful how long you borrow for
If you get a longer term loan, you end up with lower monthly repayments.
BUT don’t be fooled into thinking that this means the loan is cheaper!
Always remember the simple rule: the longer the loan, the more you pay.
- If you borrowed £5,000 at 6% over 3 years, you’d pay £152 a month (paying £463 in interest).
- If you borrowed £5,000 at 6% over 5 years, you’d pay £97 a month (but end up paying £778 in interest).
So don’t just look at the monthly repayment figure – always work out how much you are paying in interest to get the full picture.
The simplest thing to do is look for the TAR (Total Amount Repayable) figure. This figure will include the interest and any fees – and so will give you the true cost of the loan.
It’s best to use the TAR figures if you want to compare the true cost of different loans.
5. Check for early repayment charges
Some loans charge you a fee if you pay them off early (‘early repayment charges’).
Check the small print to see if a loan charges you for repaying it early
So if you think there’s a chance you may be able to pay off a loan early, check what the early repayment charges would be (not all loans charge them).
6. Be aware of sneaky ‘representative rates’
Whenever you see an advert for a loan or credit card, you might notice in the small print of the advert that the APR (the interest rate) is called a ‘representative rate’.
So what does ‘representative rate’ mean?
Well, it means that a minimum of 51% of people who apply for that loan or credit card are guaranteed to get that advertised rate.
In other words, as many as 49% of loan applicants will be charged a higher, more expensive rate of interest than advertised.
Some loan providers will also only offer their best rates if you borrow a certain amount of money.
7. It’s sometimes cheaper to borrow MORE
Bizarrely, with some loans you can end up paying less if you borrow more
It may sound bizarre, but it can sometimes work out cheaper to borrow MORE money rather than less.
This is because the larger the loan, the lower the interest rate (generally speaking).
For example: a loan company may charge 12% to borrow under £5,000, but 5% for borrowing over £5,000.
So if you were looking to borrow £4,800, you’d be better off borrowing £5,000 instead.
If you’re in doubt as to what is the best deal, use the loan calculator tool to quickly work out how much different loan amounts would cost you.
(One thing to bear in mind though: the larger the loan, the more likely you are to be turned down).
8. Don’t apply for lots of loans at once
Every time you apply for a loan, it leaves a ‘footprint’ on your credit record, which all lenders check before deciding whether to loan you credit.
If they see that you’ve applied for a flurry of loans in a short space of time, it makes you look desperate and they’ll likely turn you down.
Then the fact that you’ve got turned down by a loan company gets recorded on your credit record – which in turn will put off other lenders and make your situation worse than it was before!
If you think your credit rating is letting you down, see our guide on how to improve your credit rating.
If you’re thinking about getting a loan in order to pay off credit card debts, stop to do a little research.
You’ll probably find that getting a loan isn’t the cheapest option for you.
You’re likely to be far better off shifting your credit card debt to a 0% balance transfer card instead.
These 0% cards allow you to transfer your debt and pay 0% interest on it for months or even years on end (in return for paying a one-off fee).
When looking at loans, you will often see both ‘secured loans’ and ‘unsecured loans’ advertised.
A ‘secured’ loan is a loan where your property is used as security (so these loans are only available to homeowners or mortgage holders).
This means that if you can’t repay a secured loan, the lender can force you to sell your property (or repossess your home) in order for them to get their money back.
Secured loans are easier to obtain than unsecured loans – and they tend to allow you to borrow more money (and for longer) too.
But the fact is, you could have your home repossessed if, for whatever reason, you cannot meet your payments. So always think very, very carefully before considering a secured loan.
A note about getting a loan to consolidate your debts
Many companies offer ‘consolidation loans’, urging you to consolidate all your different debts into one simple loan.
So you’re still in debt for the same amount of money – you just owe one provider.
Be wary of these companies (with their promise of just making ‘one simple monthly payment’).
- It only makes sense to consolidate your debts if you’re moving to a lower interest rate – otherwise you’ll end up paying more
- Even if they offer you a lower interest rate, they do this by stretching your borrowing over a long period (often 10 years or more). This means you end up paying far more overall – as they pocket your interest for years to come
It doesn’t matter how many debts you have – the key is to organise them in order of priority, and pay them off as quickly as possible. (You can see how to do that here).
More often than not, consolidating your debts into one loan just draws out your debt and keeps you in the red for longer. Make tackling your debts your priority instead.