Whilst we don’t ordinarily advocate turning to loans if you are struggling to make ends meet, we do realise that there are times where a short-term loan for any unexpected costs might be unavoidable. We share some top tips on what to look out for if you are currently considering taking out a small loan.
Know the difference between a secured and unsecured loan
You will find yourself coming across these two terms quite often. A secured loan is secured against your property and so, if you fail to keep up with repayments, you may end up losing your home. Unsecured loans are normally for smaller amounts and are not secured against your property.
Check the interest rate you are offered
Interest rates are often provided on a scale according to the amount of money you wish to borrow. This means that advertised rates may not be applicable to your own loan amount so do check the rate you are being offered before you sign on the line.
Do check for any additional costs or fees which may be added
Check with the provider to see if any set-up or administration fees are included with your loan amount. Also, if you are planning on settling your loan as quickly as possible, ensure you double check that no early repayment fees will apply.
How much interest will you pay?
Lower repayments over a longer term might seem more attractive but look at how much more it will cost you in interest payments if you choose this option. Is it really worth it? You’ll find that it works out far better to pay off the loan as quickly as you possibly can and you’ll avoid excess interest payments.
Is the loan you are considering a fixed or variable rate?
A fixed loan will remain at the agreed APR for its entire duration whilst a variable rate loan will vary over the term of the repayments. Whilst you may benefit from decreases through the latter option, you also run the risk of having to make higher repayments too.
Rather than a loan, could a credit card provide the short-term cash you need until payday arrives and you can settle up quickly and easily?
Decide whether you want PPI or not
PPI stands for Payment Protection Insurance and it is an optional part of a loan agreement which aims to cover your repayments should you be in a position to be unable to, either through illness or accident, for example. It is not compulsory and you should not be put under any pressure to take it out. If you do want to take out PPI you do not need to do so through the loan provider. You can do your own research to find a PPI provider of your own, independent of the loan provider, which better suits your circumstances. Alternatively, you can decide to forgo it completely if you prefer.
Is a loan right for you?
Do not even consider a short-term loan if your financial difficulties are already worrisome. The tips above are provided to help you make an informed and sensible decision about what to look out for when considering a short term loan. If finances are an on-going issue however, we would strongly recommend sitting down and giving your existing income and expenditure a thorough examination in order to create a budget plan that works for you before taking on any additional financial commitments.