How to choose the best loan
Unsecured loans allow you to borrow up to £25,000. When choosing a loan, you need to consider how much you wish to borrow and for how long, the interest rate of the loan, whether you are likely to repay the loan before the end of the term and whether you can afford the monthly repayments. You may also wish to check your credit rating to see if you could easily qualify for a loan.
Sometimes it can make sense to borrow on a credit card instead of taking out a loan, so check out our guide on credit cards to see whether this option is more suitable for you first. Generally speaking, the less you borrow and the shorter time period in which you repay the loan, the more expensive the loan rate is.
When applying for a loan, beware of the following:
- Headline rates: Instead of focussing on the headline rate, which may only be available to a small proportion of borrowers, you need to find the typical rate instead. This will give you a much better idea of the rate of interest you’ll end up paying.
- Fixed versus variable rates: With fixed rates you know exactly how much you’ll be paying each month, but variable rates are subject to interest rate fluctuations which could end up hitting you in the pocket when you least expect it. If you opt for a variable rate loan, consider whether you could afford the monthly repayments if they shot up by 50% or even more.
- Early repayment penalties: Some loans will incur this charge whereas others won’t, so if you do intend to pay off your loan early, it is vital that you choose the right loan.