Before taking out any type of loan, it is important that you do your homework to be aware of the different types of loan on offer, the terms and conditions attached to the loan and what all of the terminology means so that you can avoid signing up for something that down the line could be a financial headache for you.
In order to be considered for a loan, you must be over 18 years of age and satisfy certain other basic criteria.
Types of Loan
There are two types of loan available, one is a secured loan, usually for a particular purchase such as a car or a house. The item purchased is at risk of being repossessed if payments are not made according to the agreed terms of the loan. The other is an unsecured personal loan. Read more about types of loans through Everyday Loans services here.
Assess Your Creditworthiness
You can check your own credit score to assess how attractive you are to lenders. By checking your own credit score, you are making what is known as a ‘soft check’ and this type of check will not affect your credit score in any way. In general, the better your credit score, the more choices of lenders you will have and you will also be able to access some of the more favourable interest rates for your loan.
Credit Check
Each lender will conduct a credit search which is known as a ‘hard check”. This will show up on your credit file. If too many searches are made, your score will be negatively impacted as other lenders will consider that you may have too much credit already, so if you are applying for a loan, don’t apply to too many companies at the one time.
Cost of a Loan
Lenders will quote the interest rate as an APR or Annual Percentage Rate, the higher the APR, the more interest you will pay. Lenders quote a relative APR figure which is a figure that not all borrowers will be offered so check to see which APR the lender is prepared to offer you. In general, you will be able to obtain some of the better rates available if your credit check has gone well. Beware of arrangement fees, they can often represent a hidden cost and can increase the cost of your borrowing.
Affordability
What is the term of the loan and will you be able to sustain the monthly payments over that period of time? If you have a secure and steady job, there is less risk but if you are in temporary employment or your circumstances are likely to change over the period of the loan then that may be an issue as there are significant consequences for missed or erratic payments. Lenders tend to be very strict at applying their criteria and if you fail to make payments, you will find it extremely difficult to obtain any credit in the future and it may also impact on certain types of employment.
Choose Your Lender Carefully
All companies are not the same and it pays to do your homework. So, read the small print, in the event that you were not able to pay according to the agreed conditions, what are the penalties. If this is a likely scenario, contact the lender immediately.
