If you need funds for something important but don’t have savings, you may decide that a personal loan is the answer. Let’s take a look at the key things you should consider before applying.
1. How much do you need to borrow?
Make sure you only apply for the amount that will cover your expected spending. How much you can borrow will depend on the lender and your credit rating.
2. How much can you afford to pay back each month?
You need to ensure there is space within your budget for the monthly loan repayments. You can use a loan calculator to work out the repayments and see how they align with your budget.
3. How long do you want to be tied into repayments?
Shorter loan terms will involve less interest but higher repayments, whilst longer loan terms will mean lower repayments but more interest.
4. Do you want a fixed or variable interest rate?
When it comes to interest rates, most personal loans have a fixed interest rate. This means the rate remains the same for the entirety of the loan term. A variable interest rate means the repayment amounts can fluctuate
5. What is the total interest payable?
This is essentially the cost of receiving the cash upfront. You can compare this to other options, such as using a credit card and making monthly payments, to see whether it is the best option for you.
Alternatives
An alternative to a standard personal loan is to borrow money from family or friends, in which case a loan agreement can be useful. There are a large number of firms that offer loan agreement options. Many of these, such as https://www.parachutelaw.co.uk/loan-agreement, have useful online information and resources.
6. Will taking out a loan affect your credit score?
Your credit report will be checked when you apply for a loan. If you are granted one, this will show up on your credit report. If you fail to make repayments, this can negatively impact your credit score.
