How To Get A Top Notch Loan

What to look out for when choosing the perfect personal loan.

Consolidating your debts into a cheap personal loan can be a smart move. But figuring out which loan is the most competitive from the vast array of deals open to you is a bewildering experience, especially if you are unfamiliar with all the financial jargon.

However, if you can wade through it all to pick the right type of loan, you could potentially save yourself thousands and thousands of pounds.

To help you on your way, here's a guide to the best features to look out for when choosing a personal loan:

Choose An Unsecured Loan

An unsecured loan allows you to borrow without needing to put up an asset as security for your debt. While it's true you may be able to borrow more over the longer-term with a secured loan, in return you'll be expected to put up an asset - usually your home - as security. Crucially, this means your home could be at risk if you default on your repayments. Reassuringly, with an unsecured loan, you won't need to worry about losing the roof over your head.

Choose A Flexible Loan

Once you're in debt the best thing to do is to get out of it as quickly as you possibly can. To that end, when you choose a personal loan, make sure you go for one which is flexible. That gives you the opportunity to overpay either by stepping up your monthly repayments or reducing your outstanding debt with a lump sum. This allows you to repay your loan more quickly and save yourself a packet in interest.

A truly flexible loan will allow you to redeem the entire debt early without incurring harsh early repayment charges, so look out for them.

Choose A Loan With A Fixed Rate

A fixed interest rate is excellent for budgeting as you'll always know how much you're going to have to outlay each month. It also means you'll know the overall cost of your debt in advance.

By contrast, with variable rate loans you're at the mercy of the lender, who is free to increase the interest rate on your loan, making your repayments higher.

This won't happen with a fixed rate. Alas fixed rate loans aren't widely available nowadays so you may need to hunt a little further to find one.

Choose The Loan With The Lowest TAR

The acronym TAR stands for Total Amount Repayable. When shopping around for a loan, always make sure you compare the TAR rather than just the Annual Percentage Rate (APR).

The TAR will tell you every single penny you'll be expected to repay for your loan, including your monthly repayments and any fees or charges that you might have to pay. Unfortunately, the APR alone doesn't always give you all this information and the figure can be manipulated.

To put it simply, the loan with the lowest TAR is offering you the best deal.

Choose A Loan With Tiered Rates

If you opt for a loan with tiered rates, you should consider borrowing a little more than you need. OK, that might sound like a rather odd suggestion, but sometimes it can work to your advantage. Some lenders apply tiered interest rates which means the interest payable is lower on larger loans. For example, a loan may charge say, 16.9% APR on loans between £1,000 and £4,999, but if you borrow between £5,000 and £25,000 the APR could be cut to 9.9%. In this way, if you borrow £5,000 instead of £4,999 you could seriously reduce your interest bill. But, once again, look at the TAR to make sure you really are getting a good deal.

Avoid Repayment Holidays

I know I said I would talk about good features to look out for, but here's one to avoid, because it could cost you dearly: repayment holidays. A repayment holiday allows you to take a short break from paying off your loan, typically for three months.

That probably sounds like a great idea particularly if you have unexpected extra expenditure elsewhere. But, on the downside, after your holiday is over you'll have two choices: increase your remaining monthly installments to pay off your loan within the original term or extend the loan and pay it off over a longer period.

Plus, you'll have to pay extra interest as a result of suspending your repayments.

So, given that payment holidays make borrowing more expensive and can mean it'll take you longer to get out of debt, I don't think this feature is as beneficial as it appears to be.

So there you have it. My top features of a cheap personal loan.

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