All you need to know about taking out a loan
PERSONAL loan rates are at all time lows. Yet debt is like fire. Done well it’s a useful tool, done badly it burns. Here are my six key need-to-knows.
1 ESTABLISH IF YOU REALLY NEED TO BORROW?
IF YOU’RE already in debt and struggling, you can’t borrow your way out of it. Get free debt counselling from charities citizensadvice. org.uk, nationaldebtline.org, or stepchange.org – or capuk. org for emotional support.
2 BEFORE APPLYING USE AN ELIGIBILITY CHECKER USING a loans eligibility calculator is the right starting point. Tell it your information and it shows you which loan you are most likely to be accepted for. It does that without impacting your credit worthiness. The fact you can get a loan doesn’t mean you should. Some eligibility checkers include both personal loans and more unsavoury high interest loans (for the sake of
transparency mine at moneysavingexpert.com/ Loanscalc excludes high interest loans) otherwise you can end up in the sub-prime market without realising it. Loan acceptance is about more than just credit history – income plays a key role. If you have a good credit score, a lender may accept you if you want to borrow £2,000. If your income isn’t enough, it may reject you for £5,000.
3 RATES ARE AT ALL-TIME LOWS
HERE are the quick best buys (go through an eligibility calculator to see what you’ll be accepted for).
■ £1,000-£1,999: admiral.com is 13.2% rep APR
■ £2,000-£2,999: zopa.com is 12.9% rep APR and admiral. com is 13.2% rep APR
■ £3,000-£4,999: admiral.com is 6.4% rep APR
■ £5,000-£7,499: zopa.com and ratesetter.com are 3.3% rep APR and admiral.com is 3.4% rep APR
■ £7,500-£15,000 bank. marksandspencer.com is 2.9% rep APR
4 NOT EVERYONE WILL GET THE ADVERTISED RATE
ALL loans are ‘representative APRS’. The ‘representative’ bit sadly means only 51% of people who apply will get the advertised rate. The rest can be charged more, and there’s no limit how much more.
5 THE LONGER YOU BORROW, THE MORE YOU REPAY
THE longer you take to repay, the more interest accrues. For example, a 15% oneyear loan costs far less interest than a 4% loan over five years. Only borrow for the length you absolutely need to repay in. Reducing the term will make a difference to the interest you pay.
6 IF BORROWING UNDER £3,000, YOU MIGHT BE ABLE TO GET A 0% LOAN
IF WHAT you need to borrow for can be paid on a 0% credit card, then get one of those. As long as you clear it before the 0% ends and don’t miss repayments, there’s no cost. The key is, will your credit limit be big enough? Even if you can’t pay on the card, there’s a way to get a 0% credit card loan. You do this via a few specialist cards that offer ‘money transfers’. These cards let you transfer cash from the credit card to your bank account for a small nominal fee, so then you owe the card at 0%. See my guide at moneysavingexpert.com/ moneytransfers