The right personal loan will be the one that suits your needs, your affordability and your assets, but with so many products on the market, it can be difficult to choose a personal loan. However, here are some things that you should look for in a personal loan.
The Interest Rates
The interest rate that is charged on your personal loan will make a huge difference to the amount that you owe. The interest rate that you are charged will depend on if you take a secured or unsecured personal loan.
An unsecured personal loan is where the loan is not secured against an asset, which makes it a higher risk loan, which means that it will have a higher interest rate.
A secured loan has an asset attached that acts as security, which means that if you fail on your payments the lender is able to seize your asset to pay for the loan. A secured loan generally has lower interest rates.
It is useful for your personal loan to allow extra lump sum or regular payments in addition to the normal monthly payments that you will make. If your personal loan allows this, it gives you the freedom to pay off more when you can and repay the loan ahead of time.
However, make sure that your personal loan doesn’t charge an early repayment fee. This fee does vary depending on the lender, so try to find a loan with no fee or a small fee.
Loan Fees and Charges
Your overall loan cost will be greatly affected by the fees and charges that are applied. The interest that is charged will need to be balanced against the other fees so you can get the best deal on your loan.
As with anything, a lending institution needs to have a good customer service behind it. The ideal service is one where you can access your loan conveniently with online banking, make extra payments and contact the customer service through a helpline.
Overall, the customer service should be able to answer all account queries that you may have efficiently and effectively.
A Comfortable Short-Term Loan
A personal loan with a longer term will mean that your monthly repayments will be less, but keep in mind that the longer your loan term is then the more expensive it will be because you will be paying more interest.
You should consider a short-term loan, especially if you only want to borrow a small amount of money. With a short-term loan, you will be able to pay your debt off sooner and incur less interest, but your monthly repayments will be higher.
You will then need to compare the loans and decide what you are able to comfortably afford.
Wait…Don’t just apply for a loan…
What You Need to Know Before Applying for a Loan
If you are shopping around for a personal loan, then there are some things that you need to know before you apply.
Borrowing Less with an Unsecured Loan
There are unsecured and secured personal loans. An unsecured loan is considered to be higher risk, which means that you can only borrow a small amount. You can usually borrow more with a secured loan.
A Secured Loan Is Against an Asset
A secured loan is where the debt is held against an asset like your home. This then means your home will be at risk and could be repossessed if you fail on your monthly repayments.
The size of the loan that you can take will depend on the equity that you have in your home, but you should never borrow more than you can afford.
Have the Best Credit Score for the Best Rates
The fact is that the better your credit rating is the better the interest rate you receive will be. If you have a bad credit rating, then it is a good idea to first improve this before applying for a loan, so you can get a better rate.
The Longer the Loan the More You Pay
The amount that you need to pay each month will depend on the amount that you want to borrow and the period that you have to repay the loan.
If you choose a longer term than your monthly repayment will be lower, but in the long run, the loan will be more expensive because of the interest.
The term of your loan should be based on the maximum that you are able to afford each month.
Consider a Credit Card for Short Term Lending
If you only need to borrow money for a short period of time like less than a year then it might be a good idea to use a 0% interest card. These cards will give you a certain amount of time where 0% interest is charged so you can pay back the money in this time. At the end of the 0% period, interest will be charged.
It Might Cost You to Pay Back the Loan Early
There are many lenders that charge an early settlement fee. This is a penalty that you need to pay because you repay the loan earlier and is charged because the lender is missing out on a chunk of interest.
You should always read the terms and conditions carefully and look for any hidden fees. You will need to add these fees to the overall cost of your loan.
The Rates Might Be Variable
The rates that you pay on an unsecured loan are usually fixed but many secured loans may have variable rates, which means that your repayments could rise. Make sure you know what you are signing up for so you don’t face any surprises further down the road.
There are a number of personal loan options out there and you will need to shop around in order to find the one that is best suited to your financial needs and capabilities. An easy way to compare loans, is to use a comparison website that sources the best loans for you.