Choosing A Loan

There are a number of factors that need to be considered when taking out a loan, aside from ensuring that the lender is a reputable company with a consumer credit lending license:

Interest Rate
Obviously, the lower the interest rate you have to pay, the better.

Lenders usually operate a system of tiers, where the interest rate gradually falls when the amount you wish to borrow rises. The best rates are usually available when the amount you are seeking to borrow is in the highest tier of borrowing.

Not all rates will be available to all borrowers. The best deals are only usually open to those with an unblemished credit record. If you have CCJs or other 'bad credit events' then you may find that some of the best deals are not available for you.

Be aware that different lenders calculate the headline rate of interest in different ways, meaning that two seemingly identical rates of interest can lead to different repayment levels. For the best comparison of different secured and unsecured personal loans, make sure you refer to the Annual Percentage Rate, which is a standardised method of calculation and which will eliminate the distortions.

Repayment Period
The longer the term of the loan, the lower your monthly repayments will be. However, a longer term means you are paying interest for longer and will almost certainly mean that the cost of borrowing is actually higher. You should try and choose a repayment period that means your repayments are towards the upper end of what you can comfortably afford.

Repayment penalties
Make sure you read the small print, as some lenders will penalise you if you wish to make additional payments during the course of your loan term. If you have spare cash, then repaying your loan early can save you quite a lot of money in the long term, so it is probably unwise to select a loan that penalises you for doing this, particularly when there are so many loans available that let you repay the debt early.

Fees
Some lenders charge a fee for application to the loan scheme. Again, most lenders do not operate in such a manner, so it is not normally worth choosing this type of deal, unless you have a particularly bad credit record and are unable to find a loan elsewhere.

03 July 2008