How to Get a Personal Loan

By: J Tillotson

If you need a loan and are a tenant, or don't wish to risk your home taking out a secured loan, then why not apply for a personal loan instead? The rates and repayments may be higher, but it's less risky if you've got good credit.

A personal loan is taken out between 12 months and 10 years, with a fixed repayment amount and interest rate. Some lenders fix a rate for all borrowers, but these are more likely to refuse you if you have a slightly blemished credit score. Most lenders tailor an interest rate for an individual, meaning that the better your credit score, the lower your repayments will be.

Before you apply for a loan, it's always best to review your credit file to make sure it's up to date. If there are outstanding balances on there, you have a bigger chance of being refused. If needs be, try and resolves any issues before applying for a loan.

It's also a good idea to make sure you're on the electoral register. Lenders check potential borrowers to make sure they're listed on here, as a way of confirming your identity. If you've moved house recently you may not be on the register for your area.

In general, it's best to only borrow as much as you need. It all has to be paid back, including interest, so the more you borrow, the more you pay. Occasionally though, you get a slightly lower interest rate for borrowing just a little over your required amount. If this is the case, put the extra into a high-interest savings account, to assist in paying back the loan.

If you think your credit score is in good condition, then go ahead and begin looking for a lender. Personal loans are offered by hundreds of companies now, so by obtaining numerous quotes you're more likely to find a competitive rate of interest.

Don't get confused by APR, and don't look just at the monthly repayment amount. Take into account the total repayment amount, to see just how much more you'll be paying back in interest. If you take out a personal loan for ?6000 over 5 years with an APR of 6.9%, you'll pay more back in total than if you took it out over 4 years with the same interest rate, even though your repayments would be lower.

Check any fees and penalties that may apply. If you think there's a good chance you'll be able to pay off your personal loan early, you may be charged a fee by the lender which could be equivalent to several months interest. Always check the fine print for settlement fees before signing.

Don't be bullied into get payment protection insurance from your lender. If you're self-employed, or a temp, you probably won't be covered for job loss or sickness. Look at getting PPI from an independent company instead. It may be cheaper, and you'll have a better chance of full cover.

Finally, make sure that whatever personal loan you choose, you can afford the repayments. Work out what you can afford to pay per month, and stick to it. Don't think you'll be able to manage if your repayments are a little higher than you budgeted for. It's not worth the credit file risk.

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