Personal loans are a great way of borrowing for large purchases such as a new car, home improvements or that once in a lifetime event or holiday. As you can usually borrow far more with a personal loan than with a credit card, they’re a good way of accessing money to pay back over a longer term.
However, there are a few questions you should be asking yourself before you go ahead and sign on the dotted line, so read on to discover five things you’ll need to consider before taking out a personal loan.
Is it affordable?
Although you might have already been approved for a personal loan, take a good look at your monthly budget to see if you can truly afford the monthly repayments comfortably.
Interest rates can rise and fall, so if the cost was to increase by a few percent during the term of your loan, you need to be sure that you can still repay the debt. This safeguards you from missing repayments and damaging your credit score.
Is there an arrangement fee?
Some personal loans charge an arrangement fee which is included in the APR (Annual Percentage Rate), so you need to consider the APR and arrangement fee as well as the interest rate before choosing the right loan for you.
Try to find a loan with no arrangement fee as it will save you money in the long run.
Do you really need that amount?
It can be very tempting to take out a larger loan than you actually need because smaller loans can work out more expensive. Taking out more than you need may reduce the interest rates and APR, but you could be lumbering yourself with excessive debt that you didn’t need in the first place.
Is it the right product for you?
If you only need to borrow a small amount of money, then another product such as an interest-free credit card might be a better option than a personal loan. Such products offer a short period where you pay no interest as long as the balance is paid off in full at the end of the interest-free term. This can make better financial sense if you only need to borrow a small amount.
Are you getting the best deal?
When it comes to personal loans, it really does pay to shop around for the best deal. Many financial service providers want your business, so they offer special introductory rates, no arrangement fees and occasionally other perks such as high street vouchers in a bid to win your custom.
Loan comparison sites are a great way of checking out the latest loan offers and comparing their affordability and if they’ll suit your individual circumstances, so don’t just go for the first loan that you’re offered.
It might seem easier to stick with your regular bank for a loan, but this can sometimes result in you not getting the best deal, so shop around first.0