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How to save money with a personal loan

Personal loan is for you to borrow money and do with as you wish. You might want to buy a car, a guitar, buy some shares or pay off credit card bills, thereby spreading the costs over a longer period at a reduced rate of interest.

You need to consider several points when you’re thinking of taking out a personal loan, such as how much you can borrow, over what period, who to go to, what the interest rate is, and what your chances are of getting the loan.

Loans are generally on offer up to £15,000, but you can get offers of up to £25,000. In the simplest cases you can get approval in principle on the telephone and actually get the money within a few days.

Loan periods can be as short as six months, but tend to be one, two or five years, with seven usually the highest. Some lenders do go as high as ten years. The most sensible use of a personal loans is for someone who wants to buy something for a relatively large amount of money, but spread the cost over a longer period of time – and that’s probably more than six months. For a period of six months, using a credit card is probably a more sensible option.

There are a lot of organisations who would like to lend you money. These include the obvious banks and building societies, and the less obvious supermarkets, but the latter can offer very competitive rates. Again, the sensible option is probably to avoid small firms that you have never heard of – except, maybe by a leaflet through the door. This is not a highly regulated market and some loans can carry very high interest rates. You must also watch out for redemption penalties, which can be very punitive if you wish to pay off your loan early, for example, by switching to a cheaper loan with a different firm. As a rule of thumb, mainstream lenders usually charge a penalty of no more than two months’ interest should you wish to pay off your loan early. You are also advised to shop around, and check with your mortgage lender – they may be willing to offer you a preferential interest rate, but look further afield too.

Interest rates are usually fixed for the term of the loan, so you will know exactly what your repayments will be each month. On one hand this is good, but on the other, it may be that somewhere down the line new loans are on offer at much lower interest rates. Of course, if base rates continue to rise, you could be using a loan at much cheaper interest rates than are available later on. Whatever the future situation turns out to be, you do not have the concerns as with a mortgage of fluctuating (rising!) interest rates and higher repayments. Most lenders will want you to take out a direct debit to make the repayments. There is another general rule, and that is: the larger the loan you take out, the lower the interest rate. The key figure to look for is the annual percentage rate (APR), as this will include the effect of any arrangement fees that you might have to pay up front. In actuality, there are not many such fees around these days.

When you apply for a loan the lender will inevitably run a credit check against you. They’ll want to know that you are a good risk without a history of bad debt and unpaid loans on your credit history. They will check your credit one of the two main credit references agencies in the UK – Experian or Equifax. Although a poor credit record may not ultimately prevent you from getting a loan, you will probably have to pay a higher interest rate to get it. If you are self-employed or work on short term contracts, you may find it harder to get a loan.

An unsecured loan is not tied to a big asset of yours, such as your home. For a secured loan, if you fail to make repayments the lender can repossess your home. With an unsecured loan this cannot happen, and that means that interest rates tend to be higher.

Many loans come with the offer of loan protection insurance, which covers your loan in circumstances where you cannot make payments, such as illness or unemployment. Such cover can often be unnecessarily expensive, so give due consideration to your need for it before you take it out. Some lenders may the insurance compulsory, but look out for exclusions and what’s held in the small print that might make a claim difficult to actually make.

The insurance did not used to be shown in the APR, but new rules mean that the APR must include the insurance cost, meaning true comparisons are much easier to make.

News source: http://www.thriftyscot.co.uk/

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.