Five Tips for a Tip-Top Loan

Banking and Borrowing

02 May 2006 | 0 Comments

If you're looking for a personal loan, here's what to watch out for.

Remember when interest rates for personal loans used to average 15%? It's not that long ago -- probably only five or six years. Now there are several loans on the market at bargain rates of less than 6% -- there's even one with a typical APR of just 5.5%.But while it may be a lot cheaper to borrow these days, you should still bear the following points in mind when you apply for one:Shop around. Many people just go straight to their bank when they want a personal loan and these can be expensive.Compare Annual Percentage Rates (APRs) and the Total Amount Repayable (TAR). Lenders calculate interest rates in different ways so it's important to check how much a loan will actually cost you.Avoid payment protection insurance unless you're absolutely sure you need it -- it could increase the cost of your loan by as much as a third and most people never claim on it. If you do think you need it, don't forget to shop around as you'll almost certainly be able to get a lower quote elsewhere.Make sure the interest rate is fixed -- there's too much uncertainty with a variable rate.Choose a flexible loan so you have the option of paying it off early without penalty - more than 70% of people pay off their loans early.One other thing. A lot of telly adverts these days try and tempt you with a consolidation loan by using the phrase 'clear your debts'. You are not clearing your debts at all by consolidating them -- you are simply shifting them from one set of lenders to another and it's vital to remember it.The reason is that it's extremely common for people to consolidate their debts with a personal loan and then to go on a spending spree using their newly cleared credit cards thus ending up in even more debt. Don't make the mistake that so many others do.> Use the Fool to compare loans

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