There are times in most people’s lives when the idea of taking out a loan sounds attractive. Borrowing cash can be a handy way to manage in the months following major spending – think January after a blow-out Christmas, or, of course, to cover the cost of X’ mas presents and other expenses if your budgeting has gone awry.
At other times people need money to buy a new car, fancy taking a foreign holiday they can pay for when they return refreshed and suntanned, or plan to marry but need some help to pay all the bills involved. Then there are all those emergency situations owning a house can bring you, like an unexpected boiler replacement in the coldest month of the year!
So taking out a loan is nothing unusual, and there are certainly plenty of providers around who seem keen to throw cash at you if you choose to apply through them, but before you do take a few moments to think about things, to do a little research, and to choose the right strategy for borrowing that will help you get the best deal possible to suit your needs.
To help you out here’s a guide to what you really need to know and think about when it comes to looking to take out a loan.
Are you eligible?
Look for sites that are open about who they lend cash too, and perhaps also how much they would generally consider lending to certain categories of applicants. For example, some loan companies favor people in full-time work, while others are more flexible.
What the application process involves
Look out for clear details on the information and evidence you need to make an application to a loan company. This helps you be fully prepared, rather than wasting time having to abandon the application to source documents while the screen times out. Some loan companies encourage applicants to do a pre-check, a useful way of getting a clue on loan eligibility without leaving evidence on your credit record.
How much you can comfortably borrow
Take the time to draw up a monthly budget – there are lots of good templates on the internet – as even if this is not required by a potential lender it will help you understand how much you can realistically afford to pay back each month. Don’t forget to take this opportunity to try to cut your regular outgoings, perhaps by finding a cheaper energy or mobile phone supplier.
The interest rates (and any other charges)
These days loan providers are forced to make the interest rates charged very clear, so rather than just providing meaningless percentage figures you should be able to see real examples of the total to be paid back on a loan of the size you are looking for. This is the information you need to compare rates between loan providers and make the best choice for you that you can.
How long you want to take to pay the loan back
There’s no such thing as a ‘typical loan’, instead there are several types, each named to show its usual purpose, for example:
- Payday loans
These are generally very short term loans for smaller amounts of cash, intended to help out with an emergency that can be funded when you get paid, which is where they get their name from. Payday loans are popular if say you need to fixan emergency issue with your hot water boiler or car, or an essential item like your washing machine breaks suddenly. However, it is best to avoid them where possible as the interest rates are usually crazily high, and it’s not unknown for borrowers to be unable to pay back the sum borrowed plus interest as soon as they’d like. Inevitably this means making further repayments, with even more interest added.
- Consolidation loans
Sometimes known as a ‘debt consolidation loan’, these are taken out to pay off several smaller, high-interest debts and create one manageable monthly payment.
- Personal loans
Usually used for things like a new kitchen or bathroom, a holiday, to help pay for a wedding, or even procedures like cosmetic dentistry or non-urgent plastic surgery, and similar personal reasons.
- Guarantor loans
These are very similar to personal loans, but to qualify you must have a guarantor, a person who agrees to pay the debt if you fail to. They are attractive to people who struggle to borrow money as they have a very poor credit record, and perhaps a history of not paying off debts. The interest rates on these loans can be very high as the borrower is considered a high risk.
Companies have different guidelines for the length of time money can be borrowed for, often depending on the amount involved. Everyday Loans offer long term loans for those interested in who don’t find a short term load to be practical.
These kinds of loans are all ‘unsecured’, which means you make an agreement to borrow without staking your property. (Barring guarantor loans.) Other types of loan are ‘secured’, so your car or a property you are buying/own is used as a kind of security. If you fail to repay the money borrowed the secured item could be sold and used to repay what is owed, so think carefully before pursuing this style of borrowing. There are usually some restrictions on what a secured loan can be used for, so they are mostly used as:
- Bridging loans
Say you have bought a new home and are waiting for the cash from the sale of your old home to go through, a bridging loan covers the difference and secures your new purchase. These are generally very short term loans.
- Vehicle purchases
Especially when buying an expensive car.
Secured loans tend to have lower interest rates and be used for unavoidable expenses rather than lifestyle enhancements.
What kind of support system is in place?
As much as being considered able to borrow money when you need it is welcome, irresponsible lending can leave you vulnerable to spiralling debt, and long term financial problems. This is why finding a loan company who do their best to not over lend are worth looking out for.
Monthly repayments should be fixed too, with all charges due over the lifetime of the loan incorporated so you will never have to face finding extra cash for unusual one-off payments.