Loans: The Do's and Don't's

There are so many financial companies wanting to lend you money, it is hard to know who to choose. With all the competition available it is easy to get confused and be mislead. Many high street banks and building societies can be un-competitive with their prices, even if you are a loyal customer of theirs. Most lenders do not work on loyalty so don't feel obliged to go with your usual bank.

Loans can be very handy things to have. It doesn't necessarily mean you are in a financial dilemma. They can be used to help fund a well-deserved treat or a variety of home improvements to increase the value of your house, but at the same time they can be used to help you out of a sticky situation or cover those unexpected costs in times of emergency.

It is worth taking the following advice and making notes of the following points to avoid taking out the wrong loan deal.

Thing about the type of loan you need

There are several types of loans to choose from.

• Credit cards tend to be an expensive way to borrow money because of the high interest rates they incur, however they can be a valid option for short term borrowing (30 days or less) on a 0% interest deal.
• Secured Loans usually have a lower interest rate than any other loan type. This is because you have an asset secured against the loan, usually your house, which reduces the risk for the lender.
• Remortgaging can release the equity in your house for you to use as you wish, or by switching mortgage lenders you could save yourself money with a better deal.
• Unsecured Loans Anyone can take out an unsecured loan. They are quicker to finalise than a secured loan and of course are the only option for tenants. However the interest rates are generally higher as well as it is greater risk for the lender.
• Overdrafts are also another valid way of getting extra cash from your existing bank. Check the interest rate to make sure you avoid having to fork out too much interest.

Think about how much you need, what for and how quickly you can realistically pay it back before choosing the option which means you pay the least interest possible.

Don't accept the first loan you see

Every deal is different. Don't go for the first loan option you see. Interest rates can range from 5% - 15% and can make all the difference. Picking the wrong loan could cost you thousands. Make sure you shop around to get the best deal possible. Nowadays it's easy to compare, despite the number of loans on offer, comparison websites can search hundred's of deals for you online in minutes.

Don't be loyal

Banks and Building Societies aren't loyal to their customers. Don't fall into the trap of thinking you'll get a better deal with your existing bank - you won't. Remember banks are businesses and out to make money from you. Not that they are all bad, you just need to pick the right one for you. Don't go for the easy option, it won't hurt you to get a loan from a different lender and it'll probably save you money too.

Don't fall for attractive but misleading figures

Advertising for loans can be very confusing and misleading. Different APR's and the phrase 'typical' are just two of them. Check what the 'typical rate' is and if that will be the rate you get. The TAR, Total Amount Repayable, is the only figure you really need to compare. The TAR on each loan will differ vastly depending on loan amount, interest rate and repayment terms, pick the one that suits your needs.

Read the small print before signing

Make sure you are completely happy with the offer before signing anything. Check the small print for little things such as additional charges and early repayment fees. As many as 47% of people are worried about missing hidden charges and details in the small print yet despite this, many still don't bother to read them.

Payment Protection - think carefully before signing

Payment Protection insurance policies can provide peace of mind for many, but before agreeing to take one out with your loan lender, make sure you are fully aware of what it covers and what the costs are. Many insurance policies are very over-priced and can be a way of finance companies making money and not necessarily in your best interests. If you do want a payment protection plan it is always worth checking out the prices from a different company.

Debt Consolidation advice

Debt Consolidation seems like a great idea. Many people think it will be their answer to getting out of debt. The only problem is that many people take out a consolidation loan to combine their existing debts into one lump sum and then end up applying for another credit card, continue spending and forget they still have a large debt to pay off. They then find they are getting even more in debt. Debt consolidation works for many people but you need to control your spending habits too - it's not always the easy way out of debt.

Follow these points for a healthy relationship with your loan and your lender. It's easy when you know how.