If you're looking to borrow a significant sum you need to be careful if you don't want to get caught out by hefty interest rates. We show you how to find the cheapest loan for your circumstances.
If you're looking to borrow a significant amount of money you need to thoroughly research your options up front.
Both the interest rate you're charged and the term you agree your borrowing over will have a significant impact on the total cost.
As such, it's important to look for the cheapest loan rates and arrange repayment of your borrowing over the shortest term you can afford.
You have several options when it comes to accessing the cash, compare the total amount you'd repay using each (including interest costs and charges) and settle for the option that costs you less overall.
1. A personal loan
If you need to borrow a significant sum of money (but less than £25,000) then a personal loan could be a good choice.
A personal loan provides a set repayment structure over a set number of years so you’ll know exactly how much you’ll be paying and for how long.
The interest rates charged on unsecured loans also tend to fall when you are looking to borrow a larger sum of money.
£25,000 is the current limit for any unsecured loan in the UK and if you need to borrow in excess of this amount you will need to provide some sort of collateral and look to a secured loan instead.
Read our article 9 Top Tips for the Best Deal on a Personal Loan for more information and use our loan comparison to find the cheapest loan interest rates available.
2. A further advance
If you are looking to borrow more than £25,000 and are a homeowner you may need to consider remortgaging your home or apply for a further advance loan secured against your property.
Whether a lender will be willing to offer a further advance will largely depend on the amount of equity you have in your property and whether they feel on your current income you can afford the loan.
The main factor that will determine the cost of borrowing in this way will be the interest rate and application fees, so make sure you check exactly what you’ll be expected to pay before agreeing to any deal.
You also need to be aware that the repercussions for failing to keep up with the repayments could be as serious as you losing your home. For this reason you need to be confident you’re able to cover the cost (or look at taking out income protection insurance) before you go down this route.
3. A secured loan
A secured loan is similar to a personal loan but is secured against something of value.
The most common type of secured loan is secured against the value of your property but you can sometimes secure a loan against other valuable items such as a vehicle or jewellery.
As the lender has something other than your word that you will repay the loan you may be able to borrow more than the £25,000 limit set on unsecured loans.
However, with any secured loan you will be putting your possessions – most likely your home -at risk, so you need to ensure you can afford the repayments each month before you accept any loan offer.
Read our article Secured Loans Explained to find out more, and use our secured loans comparison to find the cheapest loan rates.
If you're borrowing a significant amount and securing the loan on your property it's worth considering whether arranging income protection insurance is sensible. This would cover repayments on your loan if you were unable to because of illness or unemployment.
Read our article Income Protection Insurance: How to Pay Less for Your Policy for more information, and use our income protection insurance comparison to find the best cover for your circumstances.
