What To Look For In A Personal Loan

Personal loans have never been so cheap. But the headline rate isn't everything.

The last time I took out a personal loan, several years ago, the typical interest rate was about 15% and it wasn't considered particularly expensive. Oh, how things have changed!Last week Moneyback Bank launched probably the cheapest ever personal loan at just 5.5% typical APR (and don't forget you can apply for this loan via the Fool). That's cheaper than some mortgage rates! And there are several other lenders offering loans at rates almost as good.However, a great headline rate isn't the only thing to look at when choosing a loan. There are other considerations so bear the following points in mind if you're thinking about applying for one:Compare APRs and TARsLenders calculate interest rates in different ways so it's important to check how much a loan will cost you in actual pounds and pence. Don't just look for a low Annual Percentage Rate (APR) -- find out the Total Amount Repayable (TAR) as well. The latter will tell you the true cost of your borrowing.Avoid PPIDon't automatically buy the payment protection insurance offered with the loan. Quite apart from the fact that it could increase the cost of your loan by as much as a third and most people never claim on it, there are cheaper stand-alone policies that can be bought elsewhere.Go for a fixed rateMake sure the interest rate is fixed -- there's too much uncertainty with a variable rate. Note that where a 'typical' rate is advertised, lenders are required to give that rate to at least two thirds of successful applicants. If your credit history is less than perfect, or you don't fit a lender's ideal customer profile, you're unlikely to qualify for the cheap 'typical' rate, or be offered a loan at all.Choose flexibilityA flexible loan will allow you the option of overpaying so you can clear the loan early without paying a penalty. More than 70% of people pay off their loans early so if you think you're likely to be one of them, check the charge for early repayment.Make it unsecuredIf 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. If you have to go for a secured loan, then that's when you really should consider payment protection insurance -- but again, look for a standalone policy which should be cheaper.For a raft of cheap loans check out our Personal Loans centre.