Personal loans are helpful to fund an essential purchase or meet an unexpected expense. Still, as unsecured financial instruments – they can prove to be expensive. Whenever you look for options for a personal loan, make sure you find the cheapest alternative to enable your money to go a long way. The best way to get a loan is to analyse all available options before choosing a lender. But let’s look at the basics first.
- What Does The ‘Best Loan Rate’ Mean?
- 8 Top Tips to Find the Best Personal Loan Deals
- 1. What is Your Objective in Applying for a Loan?
- 2. Never Apply for Multiple Loans at Once – Use Soft Search Instead
- 3. Shop Around and Know All the Facts
- 4. Fix Your Interest Rate
- 5. Avoid Payday Loans
- 6. Use a Personal Loan Calculator
- 7. Build a Better Credit Score
- 8. Double-check Your Application
- Is An Overdraft Better Than a Personal Loan?
- Personal Loans For Students
What Does The ‘Best Loan Rate’ Mean?
The most crucial factor to consider when looking at a personal loan option is the loan rate. The best loan rate is the loan with the lowest APR or annual percentage rate. The annual percentage rate is the yearly interest generated by a sum charged to borrowers. The lower the APR, the less you will pay.
Here are eight top tips that will help you find the best option for a personal loan based on your earnings, funding needs, and repayment capacity.
8 Top Tips to Find the Best Personal Loan Deals
1. What is Your Objective in Applying for a Loan?
Before talking to a bank about a personal loan, do your homework to decide what you want from your loan. Think about how much money you want to borrow and how much time you will need to pay it back. Different lenders may charge differently for the same loan amount. If you are clear about these details, you will find loan comparison simple, and it will be easy for you to choose the best loan rate.
2. Never Apply for Multiple Loans at Once – Use Soft Search Instead
Each time you submit an application, the lender draws your credit report from a credit rating agency such as Experian. The drawing of multiple credit reports in a short while will affect your credit score adversely. It is better to use soft search tools to give lenders critical information.
3. Shop Around and Know All the Facts
Check the loan rates and options offered by your bank but don’t be in a hurry to file your loan application with them. Bank loyalty doesn’t always reward you in this way. It is better to look at the different options in the market and compare the loans you are eligible for. Compare the total cost of the amount you will borrow from all the loan providers in the market.
4. Fix Your Interest Rate
A fixed interest rate means that your monthly payments remain the same throughout the term of your loan. Even if the interest rates in the market rise, your loan amount does not change. Fixed interest rates are easier to manage and plan for; they also simplify the repayment process.
5. Avoid Payday Loans
Payday loans are short-term loans wherein the loan amount is transferred to you within twenty-four hours of applying. The interest rates on such loans are exorbitantly high, and they may trap you in a long cycle of debt. Even applicants with a low credit score may apply for payday loans. However, as much as possible, payday loans must be avoided.
6. Use a Personal Loan Calculator
Comparing personal loans and calculating the cost can be confusing at times. There are many factors to consider, and human errors in the calculation may lead to a wrong decision. Use a loan calculator to run the numbers; it is error-free, convenient, and enables you to compare as many options as possible without confusion.
7. Build a Better Credit Score
One of the most straightforward yet soundest pieces of advice anyone can give you is – to build a good credit score before getting loans. A good credit score can help you avail a better loan with a lower interest rate and favourable terms. If your credit score is 670 or lower, it is better to work towards optimising your score before applying for a loan. Here are some ways to improve your credit score –
- Pay off any existing debt, such as credit card bills, or phone bills
- Pay all your bills on time consistently for at least a few months
- Bring any delinquent accounts current
- Check if your utility or phone bill payments affect your credit score
8. Double-check Your Application
A rejected loan application can significantly affect your credit score. So, check your loan application as best as you can. There should be no mistakes, typos, or erroneous information on the application. Your information such as name, address, date of birth, and residency status should be accurate for your application to get approved.
Getting a loan is a significant commitment in your life. So, think carefully about the best time to apply for a loan and be patient with the process. Personal loans come at high-interest rates, and even if you want to pay them off early, you may be charged extra fees. Be clear about your objective for taking out a loan and carefully weigh the pros and cons. Comparing rates and terms of loans from different lenders may seem tedious, but it is always worth it in the long term.
Is An Overdraft Better Than a Personal Loan?
There are pros and cons to both overdrafts and personal loans. Overdrafts may be more expensive in the long run, but they can be helpful in a pinch. Personal loans may have lower interest rates, but they can take longer to get approved for. Ultimately, it depends on your individual financial situation which option is better for you.
If you need money quickly and don’t have time to wait for a personal loan to be approved, an overdraft may be the better option. However, you should be aware that overdrafts can be expensive. Many banks charge high fees for overdrafts, and the interest rates can be quite high as well. If you are only going to use an overdraft occasionally, it may not be worth the cost.
If you have good credit and can afford the monthly payments, a personal loan may be better than an overdraft. Personal loans usually have lower interest rates than overdrafts, so you will save money in the long run. Additionally, personal loans can help improve your credit score if you make your payments on time.
Is An Overdraft a Personal Loan?
An overdraft is a type of loan that allows you to borrow money from your bank or financial institution when you don’t have enough funds in your account to cover a transaction. Overdrafts can be helpful if you need to make a purchase or pay for an emergency expense but don’t have the cash on hand. However, they can also be costly, so it’s important to understand how they work before using one.
Overdrafts are typically used for small amounts of money and have a relatively high-interest rate. They also usually come with a monthly fee, so you’ll want to be sure that you can afford the repayments before taking one out. Additionally, if you consistently use your overdraft it could negatively impact your credit score.
Personal Loans, on the other hand, are a type of unsecured loan that can be used for a variety of purposes, including consolidating debt, making home improvements, or funding a large purchase. Personal loans typically have lower interest rates than credit cards and can be a good option if you need to borrow a larger amount of money. However, they may not be available to everyone and they typically require a good credit score to qualify.
So, is an overdraft a personal loan? The answer is no. While both types of loans can be used to cover unexpected expenses or fund major purchases, they work in different ways and have different terms and conditions. If you’re considering taking out a loan, be sure to shop around and compare offers to find the one that best suits your needs.
Personal Loans For Students
There are a number of personal loans available for students in the UK. These can be used for a variety of purposes, such as paying for tuition fees, accommodation or other living costs.
There are a few things to consider when taking out a personal loan as a student. Firstly, it is important to compare the different interest rates and repayment terms on offer from different lenders. It is also worth considering whether you will be able to afford the monthly repayments, particularly if you are still studying.
If you are thinking of taking out a personal loan as a student, then it is also worth checking if you are eligible for any government grants or loans first. You may find that these provide better value than taking out a private loan.
If you are considering getting a personal loan, make sure to compare different offers from multiple lenders. Pay attention to the interest rates, fees, and repayment terms to find the best deal for you. Also, remember to read the fine print carefully before signing any loan agreement. By following these tips, you can make the process of getting a personal loan as smooth and stress-free as possible.