Top 5 Tips for Taking Out a Loan

There are many reasons why you might want to take out a loan, and there are just as many types of loan, from instant loans to homeowner loans and car loans. Knowing what to look for according to your needs could help you save hundreds or even thousands of pounds. Here are the top five tips if you are thinking of taking out a loan.

1. Look at your credit report

Before choosing a loan you will need to be aware of a number of facts about your own circumstances. Firstly, check your credit report. This will show how lenders will see you as they will be checking it as well, even for instant loans, and depending on the strength of your own report you may wish to look at certain types of loan in particular. For example, if you have a particularly poor credit report, some of the cheaper loans may be unavailable to you, but you could still benefit from an adverse credit loan.

2. Make a budget

You will also need to find out exactly how much you need to borrow and prepare a budget to work within once you have taken out your loan. This should ensure the repayments do not break the bank and can help you work out what you can afford in your daily life. It is important not to borrow more than you need, as a larger loan will cost you extra in interest and take you longer to pay off.

3. Shop around for APR

When looking into your different options, you will need to shop around for the best deals on APR and PPI. The APR, or 'annual percentage rate', will be an essential consideration when deciding on a loan as it will determine how much interest you will have to pay on your loan and therefore have an impact on your monthly repayments and the overall cost of the loan. As a general rule, a lower APR will mean the loan is going to cost you less.

4. Shop around for PPI

If you are thinking of backing up your loan with PPI, or payment protection insurance, you should also shop around for the best PPI available to you. PPI is expensive so first find out if you already have a policy which could cover you if for some reason you couldn't pay the loan. If you do decide to go ahead with PPI then don't automatically choose the deal offered to you by your loan provider. By shopping around you are highly likely to be able to find a better deal.

5. Check the small print

Before signing on the dotted line, read the small print carefully and consider consulting a financial advisor if there is anything you are unsure about. Check for early repayment charges which could make it harder for you to pay off the loan sooner than agreed. Also look out for repayment holidays - where a lender gives you the chance to defer payments for a time - these could end up costing you extra in the long run in interest repayments and the overall cost of the loan.