Borrowing money from anyone is a significant commitment & making sure you're happy with the ts and cs you'll be tied into is key. To help you borrow with confidence, double check the details against this list of essential information.
Dull as it may sound, when it comes to taking out a loan it really does pay to do your homework. By checking important details and making yourself aware of the conditions before you borrow, you’ll know exactly where you stand. Here are the 6 essential details to check before you even think about signing on the dotted line.
Who are you borrowing from?
It’s vital you know exactly who you are borrowing the money from otherwise you could wind up in financial difficulty. Make sure you have the specific details of the bank, building society, or company you’ll be dealing with and if they are not a well-known name it’s certainly worth ensuring that they are regulated by the FSA, by checking the FSA Register. Investigate your lender’s website and make sure there is a registered address you can write to if you need to.
Are you eligible?
You may have found a loan with a rate that appeals and repayment conditions that suit your circumstances but before you apply check that you are actually eligible to take out the loan.
Bear in mind that some loans may only be available to those over a certain age, those who earn over a certain amount a year, or those who are customers of the bank or building society offering the deal already.
As such it's pivotal that you check you actually meet the loan's application criteria and stand a chance of getting approved before you apply; otherwise you'll end up wasting your time at best, and at worst damage your credit rating when you get turned down.
The application criteria for every loan available is listed in the money.co.uk loan comparison tables making it easy for you to figure out whether a deal your interested in is worth applying for.
What’s your rate?
Naturally one of the most important things you will have to look into is the rate of interest (APR) that will be applied to your loan until you have repaid it in full. Check that this is competitive by comparing it with other rates currently offered on the loan market.
However it’s important to note that the ‘typical APR’ advertised on many loans will only give you a very vague notion of what your actual APR will be once you have applied for the loan. A typical APR is only offered to 2 out of every 3 borrowers, and the actual rate you'll end up paying will depend on factors such as how much you wish to borrow for how long; so talk to your lender and find out what the real rate of interest will be on your loan before you go ahead.
Will your rate change?
While some loans are offered on a fixed rate basis - meaning the rate at which interest is applied to your borrowing will stay the same for an agreed period of time - others don't provide you with this guarantee and can instead change at your lender’s discretion.
There are pros and cons to both; for example a fixed rate allows you to budget effectively because you know exactly how much you’ll be paying each month, while variable rates are often lower but come with the risk that they could go up at any time.
In any case it’s worth knowing whether your loan will be charged at a static rate you can rely on, or a variable one that may change with little warning.
Are overpayments allowed?
Though much of your loan period may see you steadily making the required repayments each month, you may at some point be in a position to clear your loan more quickly by paying more than the amount you initially agreed with your lender.
But before you can do so, you’ll have to check that overpayments are allowed in accordance with your loan’s terms and conditions. If your loan is paid back sooner than the agreed timescale you may face a penalty for ‘early repayment’ (to put it cynically, this is simply because loans paid back early accrue less interest for the lender).
As such it’s a good idea to check your lender’s policy on overpayments before you take out the loan if you anticipate that you may want to overpay at some point.
Are you being charged for something you don’t need?
Sneaky as it may seem, some lenders will automatically apply insurance to your loan such as PPI (Payment Protection Insurance) without your consent, or at least without making it clear that you have the option to opt out. This will simply make your loan cost more overall and in many cases is an unnecessary form of insurance.
If you feel you don’t need PPI make sure your lender is aware of this and is not applying it to your loan without your knowledge. However, if you would appreciate the reassurance that this type of protection provides then it's worth shopping around for the best deal as your loan provider is unlikely to offer you the cheapest, or most comprehensive cover.
