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A Quick Guide to Unsecured Loan Companies

By: James Miller

I would like to start this article by giving some definitions of terms used. A credit check is a search executed by a prospective loan provider to appraise how eligible you are for lending. Lenders will study your credit file to know your present and past credit history. Lenders can then assign you a credit rating to identify whether the manner in which you manage your money matters satisfies their conditions for being granted credit.

A Credit Score (Credit Rating) is a method that potential loan companies use for calculating the credit worthiness of a prospective client. Lenders will investigate the prospective client's credit file, the facts and figures on their application and the amount of borrowing required. Lenders will then use a mathematical scoring process to guage the size of 'risk' involved in lending to the would-be borrower.

Prime lenders are suitable for customers with a positive credit history. Prime lenders normally offer the most favourable rates and the lowest charges for taking our a loan, dependant on you satisfying their conditions. In the event you have tardy or missed instalments on any other credit within the most recent six years, it is not very likely you will qualify with a prime lender. If you are given approval and your credit record is not as positive as it might be then you will most probably pay a few percent more than others with a glowing financial history.

When you hear the term a 'sub prime' lender, this is a company who provides lending to anyone with blemished or poor / bad credit scores. The average client of a sub prime lender is anyone who struggles to obtain money from other traditional providers. This would be due to them falling into financial struggles before now and now having a negative credit rating. Sub prime loans are often called Non conforming loans.

If you are looking to take a loan out and for whatever purpose - whether it is for debt consolidation or to purchase a new car or even to pay your child's university fees - there are things that you need to check before you sign on the dotted line.

The most important factor is affordability. While on paper a monthly repayment may look manageable, you need to look at all your financial commitments realistically. Draw up a monthly budget - include everything from your mortgage to savings to home and car insurance, other debts or commitments you have, plus food and 'going out' costs - and be realistic! For example, if you normally spend ?200 a month on food and going out, do not write down ?100 thinking that you?ll be able to manage on less money - you won't!

If you have some money left after all this, then this should be the upper limit of what you can afford to pay out for your monthly loan repayment.

Once you have seen that you can afford the cost of the loan, you need to look the small print.

For example, most loan providers have a clause in the contract between you and them that entitles them to charge you a financial penalty if you pay off the loan early. This is called 'early redemption'. The amount you will be charged will vary from lender to lender, but you can typically expect to pay two months? worth of interest on top of the settlement figure.

Also, check out what happens if you make a late monthly loan payment - most providers will charge a fee, so it is important that you know exactly how much that will be charged.

Shopping around will put you in good stead for finding the best loan product for you. There are hundreds of different loan products out there - some even have loan repayment holidays where you can skip a monthly repayment - so don?t just grab the first deal that comes along.

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