There might not be any amazing deals out there at present, but that doesn’t mean we’ve got no guidance for you on personal loans. Here are 15 tips.
There’s not much to distinguish unsecured loans at the moment. The 19 cheapest providers in our market search tool have a difference in repayments of just £2.66 or less per month.
This means a £10,000 loan over 60 months will cost you £198.33 to £200.99 per month. Still, that difference could cost you an extra £160 over five years.
With such a small difference in both price and small print, I can’t really give you any interesting selection tips. Therefore, I shall instead give you 15 ideas to help you when getting your unsecured loan.
1. Don’t borrow more than you need.
2. To save on interest payments, keep the term of your loan as short as possible without causing yourself difficulties. This may be the time to do some proper budgeting to see what you can really afford.
3. Get a fixed-rate loan. There is no reason to get a variable rate loan. If your record is so bad that this is all you are able to get then you probably need a more drastic solution to your debt problems and should visit the Dealing with Debt board.
4. Compare the Total Amount Repayable (TAR) rather than the Annual Percentage Rate (APR). The TAR will give you an accurate picture of the total cost of your loan, whereas the APR can be manipulated. The TAR is clearly shown for each loan in our search tool.
5. Choose a flexible loan if you can. This will enable you to make overpayments or pay off your loan early. We believe that most people pay off their loans before the original terms ends, so don't be penalised for it.
6. Consider alternatives. Zopa and lifetime balance-transfer cards will often be cheaper for you when you consider that you can overpay or pay the debt off early for no charge.
7. If your application is declined, you may be referred to some dodgy secured loans company. Avoid this by searching hard for that tick box to opt out. It’s often buried somewhere obscure, like in the data protection policy document.
8. Most people would be better off avoiding secured loans. These are something like mortgages and mean that you’re more likely to lose the roof over your head. (It is possible to lose your home through unsecured loans, but this is less likely.) Secured loans usually also have variable interest rates.
9. Don’t walk into your local bank for a loan, because that’s normally very expensive.
10. Don’t sign up for the payment protection insurance (PPI) that is offered at the same time. If you want to benefit from this cover, you should buy it separately from a stand-alone provider because it’s much cheaper. We’re often talking thousands of pounds cheaper here, even for loans of just £7,500.
11. Don’t go for gimmicks such as repayment holidays, cashback and 'buy now, pay later' deals. Ultimately, you'll pay a lot more for these loans.
12. If you're using a personal loan to consolidate various debts, don't forget you will simply have switched your debts to a new lender. You haven’t paid off your debt! Cut up your cleared credit cards or you’ll follow the majority of people by racking up further debts.
13. If your credit record isn't perfect, consider a tactical loan application. You're more likely to be accepted if you go for a loan with a slightly higher typical APR.
14. Ring a company you already have a relationship with to ask what they’ll offer. Sometimes they have good deals. Do compare what they offer with the rest of the market though.
15. And finally, don't let the lender tempt you into dragging out your loan.
You can read five more tips in my recent article Five Risky Ways To Pay Off Debt Faster.
> Compare personal loans and lifetime balance transfer cards through The Fool.
