Beware loan fine print
Considering a personal loan? Making sure you have all the facts can help you get the best deal.
If you are planning to buy a new car or make renovations to your home, a personal loan could be a cost-efficient way to secure financing.
However, it’s essential you do your research before you apply. Here are six things to watch out for before signing on the dotted line.
1. The total amount repayable
When taking out a personal loan, you should always enquire about the total amount repayable (TAR). Unlike the APR, the TAR tells you the exact cost of the loan including fees and interest payments.
A loan that comes with an attractive interest rate could carry expensive hidden fees. Before you apply for a loan, ask about any arrangement and administration costs.
2. The repayment holiday
Having a break from repaying your loan might sound appealing. However, a loan with a compulsory repayment holiday could end up costing you more. Although you are not making repayments on the loan, the debt will still be attracting interest.
3. Early repayment charges
Repaying your loan before the agreed term might benefit you but it isn’t in the lender’s best interests. Therefore some providers charge you a penalty fee if you repay your debt early.
If you think you may be able to pay off your loan early, it’s a good idea to read the small print very carefully. In the event of a significant early repayment charge, you could actually lose money.
4. Your credit rating
As with most financial products, you will not qualify for the best rates on a personal loan if your credit rating isn't up to scratch. If your score is poor, you are unlikely to qualify at all.
When a loan provider advertises a typical APR, the company is only obliged to offer this rate to two thirds of customers. Those with a low credit rating are unlikely to be offered the APR.
5. Are you putting your home at risk?
It’s essential you understand all the risks if you’re taking out a secured loan. If you secure your loan against a valuable asset such as your home or your car, you could lose this item if you default on your repayments.
6. Do you really need a loan?
If you only need to borrow a small sum, you could consider taking out a card with 0% purchasing power. As part of an introductory offer, these cards waive interest on any new purchases.
If you’re confident you could pay off the purchase in a relatively short space of time, one of these cards could be a cheaper alternative.
At present, the Tesco Clubcard credit card offers a market-leading 13 month interest free period on purchases.
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
Loans - FAILING TO ADHERE TO REPAYMENT TERMS MAY RESULT IN PENALTY CHARGES AND AFFECT YOUR CREDIT HISTORY. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. Rates may depend on your individual circumstances
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