There are many options available to you when you need to borrow money for any number of reasons. You could ask family and friends, see if there is funding available or take out a loan. Depending on what you need the money for, a personal loan can be a useful choice.
Also known as an unsecured loan, this is ideal for many applications and you do not have to be a homeowner to take one out. Find out more here about personal loans and consider the following five points before deciding whether to take one out yourself or not.
- Credit History
In order to be approved for a personal loan you will need a good credit history. This is because the loan is not secured against your home, so the lender needs good assurance that you will be able to meet all the repayments.
You can easily check your credit score online and there are a few quick ways to improve it. Ensure you are on the electoral register, cancel all unused credit cards and stop applying for credit. Another tactic is to take out a credit card and pay it off on time, which will quickly improve your rating.
- Interest Rates
Being unsecured, personal loans usually have a much higher interest rate attached to them. You will need to consider whether a fixed or variable rate is the best option depending on the time and circumstances.
UK interest rates have been falling, with 388 cuts to savings accounts in August alone, with the best one year bonds paying 1.66pc. However, should interest rates increase then the situation will be different, with each offering more reasons for fixed or variable rate personal loans.
- Repayment Terms
You will need to budget and ensure you can afford to meet all the repayment terms, as otherwise your debt may spiral out of control. Consider whether after taking out the loan that you will be in a better financial situation to pay the loan off or not. Check all the fine print, as some personal loans inflict charges should you make repayments earlier than needed, which can get steeper depending on how much you have borrowed.
- Shop the Fees
It is worth shopping around to discover the personal loan that offers the best terms. Many can possess hidden fees, so while they may claim to have low interest rates, this will be offset by charging much higher opening or other fees. Consider all your options, both by searching online and asking around on the high street, and you should soon discover the best personal loan for your needs.
- Alternative Options
In some cases, a personal loan may not be the best option for your financial situation. If it’s only a small purchase you need the money for then a credit card could be more advisable. Likewise, if you are worried about not being able to meet repayments then think about asking to borrow the funds from friends or family.
Make all these considerations before you take out a personal loan to use for any application.