It’s a new year and that means finally getting around to sorting out your finances that you may have been putting off since before Christmas. Knowing where to start when it comes to your money can be a headache, and finding the best deals isn’t always easy at times. Whatever your financial goal is this year, you want to make sure that you’re getting value for money. Whether you’re looking to clear some existing debt, get that new car you’ve been eyeing up or book a holiday of a lifetime, a personal loan is usually a great way to do it. But how can you find the best deals available and avoid making the wrong decision?
Compare What’s Available To You
This can’t be understated when beginning to look for lending that is really going to help you this year. As consumers, we are always reminded to shop around and find the best deals available, and this is the same when looking for a personal loan. By far the easiest way to compare what’s out there is by using an online comparison tool that will easily show you everything at a glance, highlighting your options. You can do this the manual way and look up every lender you can think of or by running a search of lenders, but this is much more time-consuming. The idea is, you’ll be able to pick from a list of lenders a personal loan that gives you a low rate of interest and affordable repayments. Once you have identified a lender, you can then investigate the loan they are offering in more detail if you wish.
Personal Loan Options
When you start to view all the available options for personal loans, you’ll begin to see there are many different types of lenders and different options of personal loans. At its core, a personal loan will provide you a loan amount with interest together for easy monthly repayment. No hidden costs and no extra interest charges. This is what the majority of personal loans will look like. However, there are different variations depending on the lender you choose, opening up many more possibilities to you.
Not only will you find traditional bank personal loans, once the only trusted way to get this type of loan, but you’ll find many online direct lenders. You can still walk into your local bank and apply for a loan in person, but more conveniently you can apply online and still get the same great value. Not all online lenders will have your best interests in mind, however, and you should be wary of which lenders you choose. On the whole, however, most lenders you’ll find are FCA authorised (Financial Conduct Authority) and will actively follow responsible lending guidelines. Whichever form of personal loan you opt for, it should be from a trusted lender. As well as banks and online lenders to choose from, you’ll need to decide on the type of personal loan you want. From joint personal loans to ones with a guarantor attached, you’ll need to determine how you want your personal loan to be formed.
Check Your Credit Score
To be able to get access to the best deals out there, you’ll need to ensure you know what state your finances are currently in. There are a couple of things you should do to understand your current finances better. One of these is checking your credit score. As a lender will be running credit checks when you eventually apply for a personal loan, it’s a good idea to check what they can see about you and your credit history. Not only will you gain a better understanding of your finances, you will also avoid applying for a loan and getting declined if you know your credit is bad. Why risk having a further negative mark against your credit file if you can see what your score is first?
To check your credit score, you’ll need to get into contact with a credit reference agency. There are a few available that can help you, including Experian and Equifax, and are free to use to check your score. You can get access to a more detailed report at a fee, but the free score checker will at least tell you your overall score (the higher the better). If it’s showing a score that’s deemed excellent or good, you’re in the best position to apply for lending. If your score is showing anything lower than this (fair to bad), you will find that some lenders won’t be able to entertain lending to you. To give you an idea, a recent study showed the average American has a credit score of 695, which is deemed as Fair and currently an all-time high. Your options increase greatly the higher your credit score is.
Avoid High-Interest Loans
This goes without saying, but you should aim to find a personal loan that doesn’t charge you astronomical rates of interest. One of the bigger issues with some lenders is the high rates of interest they may charge you, even for a small value loan. This is so they can make as much profit from your loan request as possible. This is where comparing the offers you find, as mentioned before, becomes extremely important. It may not be apparent at first look of a lender’s offer that the rates are higher than average. You should always check the interest rates on the credit agreement before agreeing to take out any lending. Even if you’re unable to compare the loan for any reason, you should look at the interest charged on the loan amount you want and ask yourself, am I happy to pay this? If it seems too high, then it probably is.
Many lenders will enable you to work out how much a loan will cost with a loan calculator. These handy tools can show you approximately how much the loan you want to take out will cost you in interest and what the repayments would be over the term you want, for example, 5 years. This is a great way to see quickly how much a £5,000 personal loan, for example, would cost you. If the repayments are manageable and you’re happy with the interest charge, you’ll know before you apply.
One of the many benefits of having a personal loan is the fact you can see what the interest charge is at the beginning. There are many other types of loan or borrowing that will not make this as clear to see upfront. Other borrowing, such as a credit card, is one you may have considered to help. Whilst they can be very flexible and allow you to borrow a certain amount with an agreed credit limit, they do not have a set amount of interest. The variable rate on these can go up and down meaning you could end up paying much more back than you first thought, especially if it is used in the long term. A payday loan can also seem an attractive option for a loan, but again, these can charge a daily interest amount that can quickly mount up if the debt is kept over a long period. If you want your loan to be clear and upfront about the interest charge in total at the beginning, a personal loan can do it.
Aim to Be Debt-Free in the Long-Term
Closely linked with saving goals for the year, no matter what borrowing you aim to take out in the present, your aim should be to become debt-free in the long-term. If that’s not possible, then as close as you can be to not have to rely on borrowing. There are various ways you could achieve this, but it starts with you asking, do I need this loan? If you can’t say yes with confidence, then you may have to rethink your financial plans for the year. Hopefully, your plans will be carefully though out to incorporate a loan that helps you achieve your aims and allows you to have manageable repayments over a short period of time. As much as having a loan over longer periods can help you get smaller monthly repayments, it can cost you more in interest and mean you keep hold of the debt for longer than you need. If you can afford to pay a little bit more each month then you should, so you can pay less in the long run.
Save as Much as You Can
Ideally, you’ll want to be able to achieve what you want this year without having to take out any further borrowing. The number one way to do this is by saving and saving as much as you can regularly. Of course, it’s very easy to say start saving, but it can be a different reality for many people who have limited funds. Not only does saving regularly mean you can then pay outright for what you need without a loan, but it will also help cover you for any emergencies. Having some form of savings is extremely helpful for when the unexpected happens and not just for buying something you really want.
You should aim to save regularly even with taking out further borrowing. You need to apply for a loan that doesn’t completely use all of your monthly disposable income. You should budget an amount from your disposable income to make the repayments you want and be able to afford some form of savings. This way, you’ll not only achieve getting a loan to pay for something immediately, but you will also be ensuring you have more money in the future.
