Personal Loans

Although we might not like to admit it, there are millions of us who have taken out personal loans – but how many of us are getting the best deal possible?

Unfortunately, it is the case that many people will take out a personal loan with their current high street bank because they think they would have to take it out with them. Others may see a deal in the paper, or on TV that sounds good, and just go straight to that company with out checking the rest of the market. You are not limited to getting a loan from the institution you have your current account with, and you certainly do not have to go with the first one you see! Always do some research to make sure you are getting the best deal – it could save you hundreds or even thousands of pounds!

So when you are looking at the deals that are available, what should you be looking for? The most obvious factor of a loan is the interest rate. In the past, lenders would calculate interest in various different ways, so comparing interest rates was not always valid. But from May 2005, all lenders have to calculate interest on loans in the same way, so when you compare one APR (Annual Percentage Rate) to another, you can be sure you are comparing like with like.

Another factor which can affect how much a loan costs in a big way is the repayment period. In general shorter is better – since you only pay interest while you borrow money, you generally pay less if you borrow for a shorter time. Longer borrowing periods may mean the monthly payments are lower, but if you check the total amount you are paying it will almost always cost you more the longer the period of your loan. So aim to borrow the money for as short a time as possible. Also, if you think you may be able to overpay you loan repayments, look for any early payment penalties – these can sometimes significantly outweigh the savings from overpaying!

There is also a difference between ‘secured’ and ‘unsecured’ loans. With secured loans, you give the lender the right to take a possession of your away from you if you fail to make loan repayments. In exchange for this security, you will generally be able to get a lower interest deal, since the lender has a lower risk. The most popular secured loan is a mortgage. If you already have a mortgage, it may be better to extend your mortgage rather than take out a separate loan.

Another point to look out for are the extra factors that can be hidden away, such as application fees, insurance and payment protection. There are plenty of lenders that do not charge application fees, so don’t bother wasting your time with those that do – particularly for smaller loans. The lender may also ask if you would like to take out insurance or payment protection, or even insist that you do. Always remember that it is normally much cheaper to take this insurance out with another company rather than bundling it all together.

Also remember that you can negotiate in loan deals, just as you can when buying a car – if you don’t like a particular point, don’t be afraid to tell them what a good deal you can get somewhere else and what can they do to match the offer.