The cost of the insurance is usually very expensive and could increase the cost of your loan by as much as a third. Most people never claim on it, and the terms and conditions regarding when a policy will pay out tend to be quite restrictive. A better move would be depositing an amount of money each month into a high-interest savings account so you’ve got an emergency fund to fall back on if you do become ill or get made redundant. If you really want the piece of mind of PPI, don’t automatically select the payment protection insurance offered with the loan. Instead find a stand-alone policy which will more often than not be cheaper.
It’s important to ensure the interest rate is fixed as this will enable you to budget easily as your monthly repayments will be the same for the duration of the loan. Where a lender promotes a ‘typical’ rate, this is rate that will be given to at least two thirds of successful applicants. If you a have a poor credit history or you don’t fit a lender’s ideal customer profile, you’re might be charged at a higher rate.
Avoid loans with early repayment penalties
Some lenders will charge you a fee if you pay of the loan early. However, a flexible loan will give you the option of making overpayments so you can clear the loan early without paying a penalty. More than 70% of borrowers pay off their loans early so if you think you’re likely to be one of them, check the terms and conditions for early repayment charges.
If you take out a loan that is secured against your home you may risk losing it if you can’t keep up with the repayments. It’s much better to go for an unsecured loan so you don’t risk the roof over your head.