Most people will need to apply for a bank loan at some point in their lives. Whether it's simply funding a necessary purchase, or helping to pay for an unplanned expense. Sometimes, you need to apply for a loan to provide some extra help when you're struggling to make ends meet.
The good news is that a personal loan can be an easy way for people to borrow when they're in need of financial help. You can access a personal loan for any reason you like, regardless of whether you want to improve the look and feel of your home, or you simply want to go on vacation.
To make sure that you're getting the most out of your personal loan, make sure that you follow these tips for reducing costs, and improving your lending experience.
1. Check Your Credit Rating in Advance
Your credit rating and credit history will play an important part in your loan application process. The rate of APR applied to your borrowing, and whether a bank will be willing to offer you a loan in the first place will often rely on your previous credit behaviour.
If lenders consider you to be a high-risk borrower, with a history of defaulting on payments, for instance, then there's a good chance that the deals you're offered will have a much higher APR, because they'll be designed specifically to give the bank more protection from poor lenders. This is why it's important to double-check your credit rating before you apply for a loan if you want to be eligible for cheaper deals.
You can check your credit rating through credit reference agencies in the UK like Experian, Callcredit, an Equifax.
2. Don't Just Check the Headline Rate
When you're hoping to take out a personal loan, you should compare the options available, and when you do that, you'll see something called a "representative APR". This means that the amount shown is the interest rate offered to 51% of borrowers.
A lot of providers will only apply headline rates to loans that meet certain circumstances. For instance, you might get a lower interest rate if you borrow a larger amount. Make sure that you examine these situations in advance.
Check how much your loan will cost according to your circumstances. Usually, you can do this by reading the small print, and using a loan calculator.
3. Shop Around for Better Deals
When you apply for any financial product, you should begin by comparing what's on the market. Look beyond the top ten options available, and compare rates and likely costs for the amount that you want to borrow from a range of providers.
Look at the representative APR quoted that considers the full cost of the loan, including any charges and fees. Additionally, make sure that you check for any potential deals or offers that might be available.
4. Don't Put Loyalty First
When you're getting a personal loan, it might seem like a good idea to go directly to the bank that you already save with. However, the truth is that just because you're loyal to your bank doesn’t necessarily mean that you'll get the best deal.
Most of the time, loyalty in the world of finance doesn't pay, and you might be offered a far better deal on your loan by simply moving to another bank who is prepared to offer benefits to you as a new customer. This is just one of the reasons why it's so important to shop around and compare your options.
5. Fix Your Interest Rate
Finally, it's usually a good idea to choose a loan that can offer a fixed rate of interest on your borrowing amount. This simply means that the rate that you'll pay interest on your loan will remain the same regardless of what might change throughout the life of your loan.
By taking out a loan at a fixed rate, rather than opting for a variable rate product, you can give yourself some peace of mind. A variable rate can change at any point during your loan term, but a fixed rate ensures that you know what you're going to be charged each month and overall, so you can budget accordingly.
Most unsecured loan providers today are happy to offer fixed rates, but it's important to double-check the fine print before you apply, so you know exactly what your interest rate is going to be, and how long it's going to be fixed for.