Here a few guidelines to ensure that you make the most informed decision you can when securing finance for any need.
Taking out a loan can be a big decision for any individual or household in the UK. Whether for a family holiday, a vehicle, home renovations or just general unforeseen expenses, one needs to put the proper amount of thought and research into picking a loan that suits them.
Factors like interest rates, loan periods and repayments are all things to consider, which can make the whole process a bit daunting.
What to consider when applying for a loan
First thing's first, you’re going to want to pick a legitimate company, bank or lending entity to acquire your finance, one that is both credible and trustworthy.
Borrowing money from friends or family, or other informal lenders can become messy and unpredictable, and, it’s best to trust in a financial institution with experience and legitimacy behind their name. Look at the bank or lender you are applying through, and ask yourself these questions:
- Can I trust this company/lender?
- Are they experienced and secure as providers?
- Am I sure of the fine print?
Once you're one hundred percent certain that these three questions are answered with a resounding a yes, you may proceed into looking into the finer points of what the loan will entail.
Be sure to source quotes from various trustworthy and legitimate lenders, so that you know you’re getting the best deal by comparing loan quotes.
How fast is the lender responding to my queries?
Talking to your lender and having them keep you in the loop seems like a small thing at first, but, the last thing you want is to constantly be kept on hold or, waiting to find out more regarding the status of your loan.
A bank or lender’s service should be quick, professional and informative. You should have full access to every detail about the status of, not only your loan application but, your loan as a whole, in case you have any questions or concerns.
Initially, you’re going to want to be kept abreast of any issues you may encounter, and know how fast you can have the money in your account.
Most banks and lenders like to do a background and credit check before they will approve your loan. A sure sign of good service will be how quickly they react to your application and, how fast they get you your money.
Understanding interest rates
Interest rates play an enormous factor in this process. An interest rate can make or break the validity and viability of any loan, as a bad interest rate could severely damage your wallet and your financial wellbeing.
However, good interest rates should be a sum that doesn’t affect you too much in the long run, usually resulting in an amount you're comfortable to pay.
Your interest rate is unique
When you are given your initial interest rates before your actual application, these are generally average interest rates the company works on. Your interest rate may vary, based off of past loan repayments, credit history and income.
Banks will not give you a loan you can’t repay comfortably, as this would defeat the purpose of taking one out in the first place.
Your lender should never want to see you in overwhelming debt, and a good lender will generally give you an interest rate that is both fair and easy on your pocket.
- How much you need to borrow
- Whether you need a secured or unsecured loan option
- Ideal loan term
- Credit score
Consider what type of loan you're taking out
Deciding exactly what type of loan you need is also incredibly important. This will play an enormous role in the amount of finance you secure, the repayment period and amount (we’ll discuss that next), and the interest rate you will be charged.
Mortgages with long terms
Home loans are generally taken out over a much longer period at a mid-to-low level interest rate, as a result of the loan term they are paid over. This can also be the case regarding vehicle finance, but will not be so with a personal loan.
Short-term loans with a high APR
Loans with shorter terms and holiday loans usually come in at an extremely high APR, which means you’ll be paying a reasonably large sum on top of your capital loan amount, but this varies between lenders.
Flexible personal loans
Personal loans come in all shapes and sizes with different interest rates and repayment terms. Some can benefit you, and other will lead to your financial undoing.
Once again, it won’t hurt to be as thorough as possible when choosing your lender. The vast array of lending institutions have a plethora of options for you to pick from based on what you need and can afford
One of the most important things to consider; the repayment term
Repayment terms can be a killer if not taken into careful consideration. You don’t want to be trapped in debt, paying off a loan for the rest of your life.
Looking at flexible, comfortable repayment terms will ultimately help you in the. hopefully not too, long run.
Aiming at securing a repayment term that is both realistic and affordable for the foreseeable future is one of the make or break factors of this process.
Generally, a lender will match you up with a repayment rate that is both fair and flexible.
Always choose a flexible provider
Having a bank that is willing to be flexible and lenient on your repayments is a must. Taking out a loan can often be a lot to handle given that life has a way of throwing us all curve-balls at the exact moment we least expect it to.
When things go wrong with your finances
Picture this: It’s four or five months into your repayment plan. You’ve been diligent thus far and all payments have gone off accordingly, leaving you in the clear.
But then, an emergency arises that ends up costing you a hefty sum of your remaining cash, and becomes an expense for another month or longer. How will you be able to repay your loan comfortably?
This doesn’t always have to be a disaster. Many banks and lending institutions will respond kindly, but it's of paramount importance that you reach out and make your circumstances clear to them before any other complications arise.
A summary of options when you can't make your repayments:
- Contact your provider and inform them of your situation
- Request a payment holiday
- Ask for a lower monthly installment
- Find out if they can offer you a better deal on interest and fees to help lower the installment amount
Contacting your lender for assistance
Many banks will be able to adjust your repayment, at least enough to ensure that your other costs are managed and, that they still get a portion of their repayments every month.
With these factors all taken into account, your lending experience should be a comfortable and rewarding one. Making sure that you are diligent in checking the factors discussed is important and necessary.
But, once that’s all said and done, you’ll be free to enjoy your newly-secured finance as you see fit, and you can rest easy knowing everything is under control.