Tips to find the best personal loan
There are many reasons to apply for a personal loan. You may need some extra cash to pay for unexpected bills or repairs to your car, or you may want to book a holiday and need the money upfront for a deposit. Whatever the reason, most of us will apply for a line of credit at some point during our lives.
For some, searching for a personal loan lender can be daunting. There so many lender options now on the market and trying to find the best deal can be difficult if you don’t know what to look for. To make the process simpler, here are some useful tips when searching for a loan.
1. Know your credit rating
Your credit rating has a big influence on being approved for a loan and the interest rate you’ll receive. There are five main categories of credit score influencers but a common cause for a poor credit score is a bad history of repaying debt. Having a good credit rating will usually mean you are eligible for a cheaper rate of borrowing, so knowing your credit score will provide an idea of what your loan will cost.
You can check your credit rating online with one of the main credit agencies; Transunion, Experian and Compuscan. When you check your credit rating, take some time to review the information they have on file for you. Incorrect credit accounts or personal information can mean your credit rating is not accurate and this may affect the cost of borrowing. Contact the credit agency directly if you spot an issue.
If your credit score is too low, you could take steps to improving it before applying for your loan. An improved score will increase your chances of being approved.
2. Don’t just go to the bank
Your bank seems like the most obvious place to apply for a personal loan and, in the past, that may have been the best move. However, the recent advances to lending technology have led to online lenders launching with smaller overheads and more sophisticated decision tools that can offer faster approval times and better rates.
3. Compare your options
It always a good idea to compare the loan options available to you to make sure you are getting the best deal. Friendly Finance can help compare personal loans from a range of online lenders in one window. Our comparison table will help you compare within minutes.
When comparing, pay careful attention to the interest rates as they will provide an indicator of the cost of the loan. The interest rates shown are a typical range and may not reflect the interest rate you are actually offered. The interest rate you are offered will depend on your personal circumstances. For example, if you have a low credit score the interest could be higher. To get an accurate interest rate you will need to apply for a loan. We recommend you do not apply to too many lenders at once as this may negatively impact your credit score.
There may be other costs to take into account when comparing personal loans. Some lenders will charge a monthly service fee or initiation fee that will increase the overall cost of borrowing. These costs can sometimes be difficult to find but Friendly Finance monitors additional details of loan offerings under the ‘more info’ section to help you out.
4. Term length is important
The ideal term length can only be decided by you and should be carefully thought through before applying. The term length is the amount of time needed to repay the loan. For example, a R10 000 loan over 2 years has a term length of 2 years. A shorter term length will mean each repayment is higher but the overall cost of borrowing is less as you are not paying interest for as long. A longer term length will mean smaller repayment amounts but a higher overall cost of borrowing.
Before applying for a loan you should work out how much you can pay back each month. A good balance between re-paying enough but not stretching yourself on a monthly basis is recommended.