Taking out a loan is a big decision, and there are now more loans and loan providers to choose from than ever. So it’s worth bearing in mind that a loan is a product like any other, and taking the time to think carefully about which one to go for should be on your agenda. So read on the five most important questions you should ask before committing to a loan.
Can I Afford It?
It sounds obvious, but you should always make sure you can afford the repayments. Work out your budget and make sure you have enough left over after repayments to meet your essential outgoings.
What’s My Credit Rating?
Before being able to decide on the right loan, you’ll need to have an idea of your credit rating. Your credit rating will affect which loans you can apply for, as well as their cost. If you have poor credit, then your options will be more limited, and you’ll pay more. So always check what your rating is before applying. There is no point in applying for loans you are not eligible for, and making multiple applications for credit can harm your rating even further.
How Much Does The Loan Cost Overall?
To make a fair comparison, you should always look at the APR rate on the loan. This tells you how much you’ll be paying by the annual percentage rate. In other words, how much interest you’ll be charged as a percentage of the total amount borrowed over the course of a year. APR rates vary massively depending on your credit history, whether the loan is secured or unsecured, and the loan provider issuing the loan. So if you have any choice, always opt for the lowest APR available.
However – a word of warning. Lenders often advertise their loans using a ‘Representative APR Rate,’ which doesn’t always reflect how much you will actually pay. Generally, only around half of applicants are offered the representative rate. So always check to make sure you’re not paying more than you anticipated.
Who Should I Apply To?
These days, it’s not just banks who provide loans. Using an online lender is an increasingly popular option for many borrowers, because not only is it easy to apply, but low overheads mean lower interest rates. If you decide to opt for an online loan, always be aware you’re applying to. Online lenders can be either direct lenders, or brokers who refer customers to actual lenders for a fee. In a lot of cases, online brokers can be the best option. They’re more likely to find a suitable lender, saving you money and time.
Try who specialise in finding online loans tailored to your personal finances and circumstances, along with added deals and discounts to help your money go further.
What Fees and Penalties Will I Pay?
Depending on the lender, you should always thoroughly research the fees and penalties charged which may be hidden in the small print. This can include set up fees, late payment penalties or early settlement fees.
Wendy Lin is a CEO of a successful private business consultancy firm and the co-owner of another finance consultancy firm out of Los Angeles. When she’s not working or travelling, she can be found in her back garden painting watercolour.