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Choosing the right loan for you

Choosing the right loan for you
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If you are planning a major purchase, such as home improvements, a new car, or even want to consolidate existing debt, you might want a loan and choosing the right loan for you can be difficult.

A personal loan gives you a set amount of money, usually from £1,000 to £25,000, which must be repaid of a fixed period, typically between one and five years. As it is not secured against any assets, such as property, they are sometimes called unsecured loans.There are different types of personal loans on the market, and what’s right for you might not be right for another. So, before you jump in to borrowing head first, make sure you are choosing the best deal for you.

Check your credit report

Choosing the right loan for youWhen you apply for a loan, the lender will run a credit check with at least one of the credit reference agencies, to find out if you are a suitable borrower.

If you have a low credit rating it will affect your ability to obtain a personal loan. It’s also important to note that a rejected application, could further damage your rating, so you should only apply for credit if you know you have a good or excellent score.

Assuming you are accept, your credit rating will also decide how much the provider is willing to lend and what interest rate you are offered.

If your credit rating isn’t good enough for you to apply for a loan, there are some things you can do to improve it, such as pay debts on time, register on the electoral roll, and fix any errors on your file.

Compare personal loans

As when purchasing any financial product, from a new bank account to insurance, you should shop around to find what is right for you.

There are a number of lenders in the personal loans market, including banks, building societies, and other financial institutions. Each loan will have different features and terms, so it’s important that you compare like for like products.

Remember, you can apply for a loan from any lender that will give you the money. You don’t have to go to your own bank to borrow. However, being an existing customer, you might be able to get an offer, so it’s always worth checking.

Interest rates

In most cases, it’s best to go for a loan with the lowest interest rates.

However, the headline rate might not be the rate that you are offered. The advertised, or representative, APR is only the interest that the lender must have offered to the majority of people.

Keep in mind that a majority is 51%, so 49% of borrowers could have been give a much higher rate – you included. The best interest rates are reserved for the best customers, so if your credit rating is less than stellar, you might find that the rate is higher than you expected.

Choosing a loan doesn’t have to be complicated, but it can be time-consuming. To get a complete overview of what’s available, use an online comparison tool.

 

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About Jemma Porter

About Jemma Porter

Jemma Porter is an experienced content creator who has written for a number of online publications. A self-confessed penny pincher; she's often found seeking out the best personal finance deals.

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