|
Author: George McGonigal Article source: http://www.personal-loans-365.com/. Used with author's permission.
Borrowing money is a big decision and not something that can be rushed into without thinking it through. That's why most financial experts recommend you take the time to go through the advice section and answer the following questions.
How much do I need to borrow and how much can I afford?
What is a realistic repayment period for me?
What are my other borrowing options?
Should I go for a secured or unsecured loan?
What do I need to know about interest rates?
How do I find the best loan company or loan broker?
How much do I need to borrow and how much can I afford?
The amount of money you need to borrow will probably be the same as the cost of the holiday, car, or any other item you intend to purchase. In any case that is a decision for you to make, the only advice I can offer is to make sure you only borrow the amount of money that you really need that you can afford the repayments.
In order to work out how much you can afford to pay back you'll need to have a money management plan. This plan contains your budget, all household income and all household outgoings and helps you to identify what you want to do with any left over money at the end of the month. Once you have finished your plan you can see how much you can realistically afford to pay each month. That amount should then determine how much you borrow and over what time period you pay it back.
What is a realistic repayment period for me?
Its very temping to opt for a long repayment period as it means you can either pay back a smaller amount each month or even choose increase the amount of money you borrow. However you should remember that the longer the term of the loan the more money you will pay back in total (interest and charges).The repayment table below demonstrates the extra cost of longer repayment periods.
However it's equally important to not end going for the shortest possible repayment period you can afford and leaving your monthly balance sheet at zero with no room for movement should you spend more than you budgeted for in any given month. So always be careful to allow for any surprises and make sure you leave enough money so that you can enjoy yourself from time to time.
Example repayment table (at 10%)
Repayment period 3 years 5 years 10 years
Amount borrowed £10,000.00 £10,000.00 £10,000.00
Total interest repaid £1,543.40 £2,621.60 £5,573.60
Monthly repayment £320.65 £210.36 £129.70 respectively
What are my other borrowing options?
Before taking out a personal loan you should always study what other options you have open to you to finance that purchase. If you have savings then it will definitely save you money to use the savings instead of paying interest on loans. Should using savings not be possible for you other forms of borrowing include the following.
Overdrafts. If you only need money for a relatively short period of time and only every now and again then you should consider an overdraft facility. Overdrafts are not recommended for medium and long term borrowing.
Credit Card. Credit Cards are another excellent form of short term lending. If you just need a bit of help from time too time then credit cards can be very handy and flexible. Most cards also offer cash back, 0% balance transfers for the first six months or low introductory rates. The typically higher APR of credit cards once the "offer" period expires means that they are not as cost effective as personal loans beyond the short term.
Re-Mortgage. Another option for homeowners is re-mortgaging their homes to unlock the capital tied up in the property and with the significant growth in house values of the last few years most people do now have significant equity in their home. Interest rates for this type of borrowing are normally low but it's worth remembering that you could be paying off your mortgage well into your previously planned retirement.
Should I go for a secured or unsecured loan?
Personal loans can be either secured or unsecured. A secured loan is secured on a major asset, usually the borrower's home. They are cheaper than unsecured loans but if you continually miss repayments (default on the loan agreement) you risk loosing your home as it can be seized by the lender and sold to repay your debt, although this is usually a last resort for most lenders. Secured loans are commonly used when borrowing larger sums of money over a long period of time.
The other type of personal loan is an unsecured loan. If you don't have a home or pay a mortgage then you can only take out unsecured loans. Unsecured loans are usually available for smaller amounts (£500 - £15,000). These loans are more expensive because they are riskier for the lender as they can't repossess your house to recover the loan if anything goes wrong. Of course unsecured loans are also open to homeowners as well.
What do I need to know about interest rates?
In short the lower the annual percentage rate (APR) the better. However the amount of interest you pay on a loan depends on your credit rating. If you have a good rating then you are a safer bet for the loan company and can therefore enjoy a lower interest rate. It's also worth noting that the rates you see advertised are often only available for people with excellent credit ratings or who borrow a specified minimum amount.
Another common mistake is comparing loans based on interest rates. The interest rate on its own does not give the full picture as it doesn't include all charges. However help is at hand in the form of the annual percentage rate or APR, which is a calculation that allows consumers to benchmark and compare the cost of borrowing. APR takes into account both the interest rate you pay and any other fees charged by the loan provider. It also looks at when and how often interest and charges must be paid. So make sure you compare APR's when shopping around for the best deal and not the advertised interest rate.
How do I find the best loan company or loan broker?
Once you have answered all the other questions you are ready to start shopping around for the best value loan for your circumstances. Unless you get lucky first time then the only way to get the best loan is to do just that, shop around and compare rates. This is usually time consuming but often worthwhile as the difference from one lender to another is often in the hundreds. Loan Brokers claim to do the searching for you but are not necessarily the cheapest and sometimes have a large fee so make sure you check out lots of companies for yourself.
It's also worth remembering that the cheapest loan companies aren't always the best. So go with a company that you feel you can trust even if it costs you a little more. Some of the smaller and less ethical companies will provide a lower standard of customer service and possibly apply more charges than some of the more established lenders that have brand names to protect.
So off you go and get the best value loan you can find. Good Luck. George McGonigal
George is webmaster of an online personal loan resourcs website for UK borrowers. We bring under one roof lenders who offer online quotations to allow our visitors to compare rates in the comfort of their own homes. Why not visit us at UK Personal Loans Online: or our definitions page at Terminology Explained
or our Useful Links Page.
Internet and Network Marketing Works
Why the Internet and network marketing is the best home based business.
Tuning the Music Therapist
Music Therapy an ancient form of healing that has come back into vogue in the last decade. It often employs a non verbal musical language to help the therapist ...
Have Experience on an Epic Treadmill
The primary Epic treadmill model on the market today is the T20 Epic treadmill. It is simply great for anybody who wants to become really fit and at the same ti...
The Portfolio Diet: The Solution to Heart Disease
What if there was a combination of foods that were as effective at lowering LDL cholesterol as prescription drugs? Would it be worth adding some new foods to wh...
The REAL Key To Successfully Marketing Any Product!
Don't attempt to sell your prospects a bill of goods for profit and thereafter leave them high and dry when the sale is done! Today's prospect is more intellige...
User Guide to Payday Loan Terminologies
Some of the terminologies and definitions a customer need while approaching for a payday loan cash advance are assembled here. Please go through and gain the wi...
Growth From Discontent: Lifes Way Of Giving You A Little Push
That strange, gut-wrenching feeling you have is not the sushi you had for lunch. It's your soul trying to give you a nudge to do something. A word for that fe...
“Dating Again” Redefined
There isn't a universal definition of dating, and specially of dating again. For most people, dating means a process leading up to a deep and permanent relation...
A Guide to Finding the Right Health Insurance Company
There are many people in America today that are in dire need of health insurance for either
themselves or for their entire families. This can be for many reas...
8 Things That Maketh Not The Lady
Annoying characteristics of Western women. How to make a bad first impression.
All Is Going Well?
The true test in life does not occur when all is going well. The true test takes place when we are faced with challenges. Some people have a ...
Colossal Legs Unleashed: The Secrets To Powerful Legs & Powerful Athletic Performance
High powered leg training to maximise athletic performance. Understand the principles to adaptation, strength periodisation and power to push your performance t...
Raise Your Fees Overnight!
Do you want to make more money? Yes, I guess that is a rhetorical question. Everybody wants to make more money, but oftentimes we are not willing to do what ne...
What Did I Do? Will Someone Tell me?
Have you ever thought you were doing something nice for someone only to receive a very cold reaction. Do you stand there wondering what you did wrong and why y...
Have You Ever Opened a Checking Account?
Some things to think about before you open a checking account.
Bedroom Marketing
Hopefully we are all adults here, so let's talk about sex for just a minute. No, I'm not talking about porn sites, I'm talking about taking a look at what I cal...
How Can I Teach My Toddler to Share?
Helping your child move from breast breast milk or formula to solids is a milestone for both you and your baby. However, it can be challenging for some parents....
How Would YOU React To Tragedy Like This?
The true story I'm about to share will have a profound impact on you, just as it did on me. One day a mother was in her kitchen doing the dishes, when through t...
Essential Points to Remember While Selecting Merchant Services
Understanding how to select merchant services can impact your sales revenue and profit. Learn the hidden rules of the merchant account business.
Design Psychology: How Our Sensory Responses to Aromas Create Happy Homes
The sense of smell, a potent tool in Interior Design Psychology, brings a feeling of harmony and serenity to any room in a home. Embrace the scents you love and...
Learn The Truth About Identity Theft
Identity theft is the fastest growing crime in America, according to a recently released FTC study. Did you know that the term "identity theft" did not exist un...
Short Messaging Service (SMS) for Enterprise Messaging
Short Messaging Service (SMS) for Enterprise Messaging SMS for Enterprise Messaging - Value added services Short message service, usually called SMS, is a globa...
Seller Financing
Although any loan used for buying real estate is strictly called a purchase money mortgage, the term is often employed for seller financing, those transactions ...
Cash Flow: Why Chaos Equals Poor Cash Flow
Are your business processes creating chaos and having a negative impact on your cash flow? Get tips from a small business consultant.
|
Print this page