With your laptop, tablet or phone you can apply for a loan in a matter of minutes, but the consequences of that snap decision will stay with you for the duration of the debt.  So rather than act in haste and repent at length it makes good sense to explore your options carefully before you take on a significant financial obligation which have an impact on your finances for years to come. 

What type of loan would suit you best?

An unsecured personal loan will enable you to borrow up to £25,000.  Although the advertised interest rate may be very attractive, this is not necessarily the rate that you will be offered.  The advertised rate is a ‘typical rate’, which means that at least 66% of applicants must be offered this rate but the remaining 34% might be offered a higher rate of interest. 

In order to reduce your monthly payments, you may be tempted to extend the duration of your loan but although this will give you more money in your bank account in the short term, over the lifetime of the loan you will be paying significantly more interest.  If you need to borrow a small sum of money over a short period, say twelve months or less, you should consider a 0% interest credit card.  As long as you pay back the debt before the introductory offer expires, you will be able to borrow money without paying interest.  Failure to repay the debt before the expiry of the 0% interest period will result in you paying a high rate of interest on the outstanding debt. 

In order to borrow more than £25,000 you will need to be a property owner and take out a secured loan on your property, which means that if you don’t keep up the monthly repayments, your home could be repossessed.  The amount that you can borrow will depend on the equity in your home.  Paying back a secured loan early does not mean that you won’t have to pay interest and there are likely to be penalty charges.  When taking out a secured loan, look for any hidden administration and arrangement charges.  Be aware that if your secured loan has a variable rate, your monthly payments could suddenly increase.

The better your credit score, the better the interest rate you will be offered

Lenders can access information held on your credit score with three credit reference companies: Callcredit, Experian and Equifax.  If you don’t know your credit score you should check it and ensure that the information held on you is correct. 

Each time you apply for credit, it is recorded on your report, so lots of applications in a short period will have a negative affect on your credit score. If you already do have a weak credit score, it is still possible to get yourself a loan by applying for a bad credit loan. This type of loan tends to have a higher interest rate and a lower borrowing limit. If you are declined a loan, do not immediately apply to another lender.  Lenders don’t like you to access too much credit, so make sure that you have closed old accounts, or joint accounts that you no longer use.  Also, being on the electoral roll improves your credit status and if you’re not on it you may find it difficult to get a loan.

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