Tips for selecting a personal loan

If you're considering taking out a loan, below are some tips for finding the best one:

Shop around

It's a mistake to go straight to your bank for a personal loan simply because it's the easiest route to take. You can almost always get a better deal elsewhere and through this website you can compare the rates from over 550 different loans.

Compare the Total Amount Repayable (TAR)

We tend to check the APR (Annual Percentage Rate) when comparing interest rates but with a loan you're better off comparing the TAR (Total Amount Repayable) instead. APRs are calculated in different ways by different lenders so it's much easier to check to see how much money you will actually pay back overall.

The Total Amount Repayable (TAR) will give you the true cost of your borrowing.

Avoid Payment Protection Insurance (PPI)

PPI pays your monthly repayments if you are unable to work due to accident, sickness or unemployment, and it will pay off your loan if you die.

However the cost of the insurance is usually very expensive and could increase the cost of your loan by as much as a third. Most people never claim on it, and the terms and conditions regarding when a policy will pay out tend to be quite restrictive.

A better move would be depositing an amount of money each month into a high-interest savings account so you've got an emergency fund to fall back on if you do become ill or get made redundant.

If you really want the piece of mind of PPI, don't automatically select the payment protection insurance offered with the loan. Instead find a stand-alone policy which will more often than not be cheaper.

Go for a fixed interest rate

It’s important to ensure the interest rate is fixed as this will enable you to budget easily as your monthly repayments will be the same for the duration of the loan.

Where a lender promotes a 'typical' rate, this is rate that will be given to at least two thirds of successful applicants. If you a have a poor credit history or you don't fit a lender's ideal customer profile, you're might be charged at a higher rate.


Avoid loans with early repayment penalties
Some lenders will charge you a fee if you pay of the loan early. However, a flexible loan will give you the option of making overpayments so you can clear the loan early without paying a penalty. More than 70% of borrowers pay off their loans early so if you think you're likely to be one of them, check the terms and conditions for early repayment charges.

Avoid secured loans

If 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. It's much better to go for an unsecured loan so you don't risk the roof over your head