5 Tips for Taking Out a Personal Loan

5 Tips for Taking Out a Personal Loan

by Rebecca Hall on 29 Mar, 2011

Taking out a personal loan can be just what you need to sort out your finances, but getting the best deal is absolutely essential to make sure you don’t end up worse off than you currently are. Here are 5 tips to making sure you get the most out of your personal loan.

Shop Around
As with all financial products, shopping around is imperative. Although it may be tempting to just take whatever your current account provider offers you, it may not be the best deal, and going elsewhere could save you an enormous amount of money, at least in the long term. The temptation to go with the easy option may be great, but resist it at all costs.

Read the Small Print
It’s important to know what you’re getting yourself into. If you don’t know what APR means, looks it up. Educate yourself on loans to make sure you’re getting the best deal. On all the loan packages you look at, establish if there is a compulsory ‘payment holiday’ and whether or not interest accrues during this period. Find out if there are early repayment charges or any other hidden costs. Sometimes the loan with the best rate isn’t the best deal.

Check Your Credit Rating
Before going hell for leather into signing up for a loan, get your credit rating checked so you can ask your prospective loan provider how it affects the deal. If you have a poor credit rating, you are unlikely to be offered the headline rate. If you leave it too late for the credit check, you could find yourself in a much worse position than you bargained for.

Payment Protection Insurance (PPI) is designed to cover your repayments if you can’t. As with the loan itself, it’s worth shopping around to get the best deal on this, rather than just taking whatever your loan provider offers you. It could save you a substantial sum.

Examine Your Options
Before taking out a personal loan, examine other options. Perhaps what you need to spend the money on can be bought on finance, with 0% paid on the first year. Or perhaps you only need a smaller amount that could be paid off within 12 months – in that case a credit card with an initial interest free purchase period would be better.

Personal loans are a big commitment and may not be the best option for you. Make sure that it is before jumping in.

About the Author

Rebecca Hall

Rebecca Hall worked as an independent mortgage adviser for 10 years before turning to financial journalism full time. She has strong links to the CAB advising families on mortgage refinancing.