What should I consider when taking out a loan?
If you're considering taking out a personal loan you should make sure you're aware of exactly what type of agreement you're entering into. Some of the main things you should always look out for are:
The interest rate of the loan
Loans often have an advertised interest rate or APR. The rate you'll actually get depends on the type and duration of the loan and your credit rating. You might not always get the interest rate advertised, so be sure to check this once you've applied.
Some personal loans have interest rates that vary. If you're looking for a loan with fixed payments that don't go up or don't then you shouldn't look for this type of loan as the payments could become unaffordable.
The term of the loan
If you take out a loan over a longer period of time you may find that the payments seem lower. However the longer the period of time you borrow the money for, the more you’ll pay back in interest.
Taking a loan out over 10 years might lower the monthly payments, but before agreeing to the loan you should question whether you still want to be paying the loan back in 10 years' time.
Compare loans and consider your alternatives
Always make sure you compare lenders to make sure you're getting the best deal on a loan, rather than accepting the first loan you're offered. You can use comparison websites to help you do this.
Credit unions are often a more affordable alternative to banks, or expensive payday loans. They sometimes offer loan rates that are cheaper than elsewhere and they may be more willing to help people on a low income, who have poor credit or who don’t have a previous record of borrowing.
Do I need a loan?
Most importantly you should work out whether you actually need a loan. Some people take out a loan to pay for high cost items, such as a car, holiday, wedding or to consolidate their debts.
Loans can be a tempting prospect to help you get what you want more quickly, but you should always consider whether you need or could save up and budget carefully for the item instead of taking out a debt.