Loans: Fact and fiction
No matter how carefully you plan and budget, there may come a time when you need to borrow money.
Personal loans are lump sums which can be borrowed from banks, building societies and loan companies. The loan is usually arranged for a fixed period and interest rate, with monthly repayments made by direct debit. These are most popular for amounts between £1,000 and £15,000 and interest rates tend to fall between 6% and 14%.
Seven deadly sins
The personal loan market is huge - 6.5 million loans are taken out each year. Research from The MarketPlace at Bradford & Bingley reveals that whilst 84% (38 million) of people in the UK would consider taking out a personal loan, alarmingly nearly 7 out of 10 have concerns about what they would get.
But now, borrowers can learn a few trade secrets. Independent advisers at the MarketPlace have put together the seven deadly loan sins to help you get the best deal:
1. Avoid taking the first personal loan that you see
There is a big disparity between the best and the worst personal loans on offer. Interest charges can vary from 6% to 13% - a difference of over 100% on the cost of borrowing. Shopping around and save hundreds or thousands of pounds.
2. Don't be blinded by ultra attractive headline rates
Lenders quote a "typical" rate i.e. the rate that most of their customers receive but this may only be offered to less than half of the people that apply. Before signing up to a deal, check if the interest rate is the advertised rate you were expecting and if not if it is still competitive compared to what other providers may be prepared to offer you.
3. Make sure you read the small print thoroughly
47% of people surveyed worried that they may get trapped by details hidden in the small print such as hefty redemption charges, however, many admit they do not spend the time reading it through.
4. Consider all forms of borrowing
You should consider all types of credit options before deciding upon one particular course of action. Factors such as loan size, how quickly you need the money, how quickly you can pay it off and whether you're a homeowner will all affect whether an overdraft, personal loan or remortgaging is the best option for you.
5. Only sign up for payment protection if you're going to need it
Whilst payment protection is vital for some, you should only take it out if you've no other means of meeting the repayments on your personal loan should your principal income change. Otherwise it is a costly extra.
6. If you are consolidating your debt with a loan, rein in your spending urges
If you are taking out a personal loan to consolidate your debt and lower your interest payments, avoid being lured back into the spending habit by building up further debt on your credit/store cards or overdrafts.
7. And finally, don't feel vulnerable - feel empowered
Many people just go to their bank or building society for a loan - 57% of those surveyed do - mainly because they feel that their bank or building society knows them and their financial position best. Apathy costs money so shop around.
Personal loans are lump sums which can be borrowed from banks, building societies and loan companies. The loan is usually arranged for a fixed period and interest rate, with monthly repayments made by direct debit. These are most popular for amounts between £1,000 and £15,000 and interest rates tend to fall between 6% and 14%.
Seven deadly sins
The personal loan market is huge - 6.5 million loans are taken out each year. Research from The MarketPlace at Bradford & Bingley reveals that whilst 84% (38 million) of people in the UK would consider taking out a personal loan, alarmingly nearly 7 out of 10 have concerns about what they would get.
But now, borrowers can learn a few trade secrets. Independent advisers at the MarketPlace have put together the seven deadly loan sins to help you get the best deal:
1. Avoid taking the first personal loan that you see
There is a big disparity between the best and the worst personal loans on offer. Interest charges can vary from 6% to 13% - a difference of over 100% on the cost of borrowing. Shopping around and save hundreds or thousands of pounds.
2. Don't be blinded by ultra attractive headline rates
Lenders quote a "typical" rate i.e. the rate that most of their customers receive but this may only be offered to less than half of the people that apply. Before signing up to a deal, check if the interest rate is the advertised rate you were expecting and if not if it is still competitive compared to what other providers may be prepared to offer you.
3. Make sure you read the small print thoroughly
47% of people surveyed worried that they may get trapped by details hidden in the small print such as hefty redemption charges, however, many admit they do not spend the time reading it through.
4. Consider all forms of borrowing
You should consider all types of credit options before deciding upon one particular course of action. Factors such as loan size, how quickly you need the money, how quickly you can pay it off and whether you're a homeowner will all affect whether an overdraft, personal loan or remortgaging is the best option for you.
5. Only sign up for payment protection if you're going to need it
Whilst payment protection is vital for some, you should only take it out if you've no other means of meeting the repayments on your personal loan should your principal income change. Otherwise it is a costly extra.
6. If you are consolidating your debt with a loan, rein in your spending urges
If you are taking out a personal loan to consolidate your debt and lower your interest payments, avoid being lured back into the spending habit by building up further debt on your credit/store cards or overdrafts.
7. And finally, don't feel vulnerable - feel empowered
Many people just go to their bank or building society for a loan - 57% of those surveyed do - mainly because they feel that their bank or building society knows them and their financial position best. Apathy costs money so shop around.
