Loans: Applying For A Loan

The golden rule of getting a loan is to shop around before signing on the dotted line. Let's say that you're borrowing £5,000 over three years. With an APR under 6%, your interest bill will be less than £500. On the other hand, it could be between £1,000 and £3,000 with the most expensive lenders. Ouch! Also, gimmicks such as repayment holidays and other 'free' add-ons will increase your interest bill, so ignore these bells and whistles - opt for a plain vanilla cheap loan, instead!

Don't wander down to your local bank branch and sign up on the spot, because you'll find the high-street banks in the "Don't Buy" tables, not the Best Buy tables! Shrewd borrowers shop around online, because that's where the best deals are to be found. By all means, give your bank the opportunity to match your best deal, but don't make it your first port of call.

However, make sure that you initally ask for a 'quotation' when shopping around rather than making an actual application. An important factor that can affect your credit rating is the number of applications for credit that you've made. This is registered on your file and counts against you if you've been applying for credit willy-nilly over a short period of time.

Asking specifically for a quotation does not normally necessitate a search of your credit files. If it does, it will be clearly shown in your financial history as a quotation search, which will not affect your chances of being given credit in the future. You should also ensure that you give permission for a full search to take place only when you have found the right deal. Searches cannot go ahead without your agreement.

Finally, make sure you check for early settlement penalties, because around seven in ten personal loans (70%) are paid off early. Some lenders charge no early repayment penalties, but the law allows lenders to charge up to two months' extra interest if you retire your loan early.

Next article: Payment Protection Insurance

Published on November 17, 2006