While the Bank of England base rate has been at an all-time low for many months now, personal loans have remained stubbornly expensive since the credit crunch.
However, Nationwide last week announced a new market-leading loan rate of 7.7% APR for existing customers. This could spark renewed competition within the market, leading to a much longed-for slide in rates.
If you are looking for a simple and structured way to borrow money, a
Here are seven dos and don’ts you should be aware of when shopping for a personal loan.
DO shop around
As with any financial product, when it comes to taking out a personal
DON’T just look at rate
Before you
DO consider early repayment charges
It might seem unlikely at the time when you take out a personal loan – but don’t forget that it’s possible you will be able to pay off your debt early. Many loan providers will apply a charge if you wish to do so, so it’s a good idea to check how much this might cost before you apply for a particular deal. If you think there is a good chance you will want to settle your loan early, it may be worth searching for a deal that comes without any early repayment charges.
DON’T take out the first
PPI policy you’re offered Payment protection insurance (PPI) is designed to cover your monthly loan or credit card repayments if you are unable to meet them. If you decide you need this type of protection, it’s vital you shop around for the cheapest deal. Even though the FSA has recently clamped down on the selling of PPI, buying a policy direct from your lender could still cost you far more than buying from a standalone provider. Furthermore, PPI policies often come with a long list of exclusions, so make sure you fully understand what is, and is not, covered before committing to a policy.
DO check your credit rating before you apply for any form of credit
If you plan to apply for a market leading personal loan, it’s crucial that you check your credit rating first. Lenders are only required to offer their advertised 'typical' APRs to two thirds of applicants. Therefore, if your credit rating is not in good shape, you may be offered a more expensive deal than the low rate loan you originally applied for.
DON’T go for a loan without considering alternatives
If you don’t need to borrow a large sum of money, you may find using a credit card offers better value than taking out a personal loan. A 0% purchases card could help you spread the cost of a expensive outlay over an extended period of time, without charging you any interest. At 12 months, the Tesco Clubcard Credit Card currently offers the longest 0% purchases period on the market. However, if you don’t think you will be able to repay your debt within the 0% offer period, you may be better off with a long term, low rate deal. Right now, the Barclaycard Simplicity Credit Card offers a fixed rate of 6.8% APR on both balance transfers and purchases.
Victoria Bischoff is a personal finance writer at BeatThatQuote.com (http://www.independent.co.uk/money/loans-credit/6-tips-for-taking-out-a-personal-loan-1771663.html)
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