1. You should consider borrowing costs.
Examples of these are insurance schemes and prepayment penalties. Make sure you understand and are willing to pay them all. Understand your agreement before you sign, including terms and conditions. A loan may become too expensive, with variable interest rates and fees.
1a. The total cost of your loan will depend on the annualised percentage rate (APR).
The annualised percentage rate takes into account the interest amount, and all other charges.
2. Try fully mutual building societies and credit unions, then find companies that are dedicated to loans.
The first were set up to help members, and the latter’s earnings come exclusively from lending money. They can sometimes offer better deals.
3. Make sure you get the full name of the person with whom you speak, if you call your loan company.
Big offices are impersonal; your loan officer could leave at any time.
4. Don’t take on a loan thinking “Well, I can always go bankrupt”.
You would find it very hard to get credit of any kind in the future, except at loanshark rates.
5. Type the name of the lender into a search engine.
See if there are any negative postings about them.
6. Think about your budget.
Then leave a portion of your monthly income aside as coverage for emergencies and unexpected bills.
7. No matter how cheap a loan may be, pay it off as quickly as you can to avoid interest accumulating.
Try to get a loan that allows early payments; the quicker you pay back, the less interest you pay. If you extend the duration of the loan, you will have to pay much more in interest.
8. Any more than four credit checks in one month looks suspect, and may affect your credit rating.
When shopping for a quote, ask them if they’re going to check your credit-rating, to be on the safe side. They don’t need to to give you a rough estimate.
9. Depending on how bad your credit history is, it may be difficult to find an unsecured loan.
Lenders may impose very high rates, and others will simply reject your application.
10. To ensure you get the best terms, keep your credit-line as small as possible.
Loan officers tend to count the total line of credit available as a liability.
11. Pay off small debts before they’re due. Cancel credit cards you are not using.
IMPORTANT: Keep your oldest card, for the credit history attached to it. Otherwise, consider their interest rates and fees, when deciding which ones to hold on to.
12. If your spending is out of control, don’t put your home at risk by getting a secured loan to pay off your debts.
13. Shop for interest rates when the financial markets are calm.
Rates change daily, so compare lenders. The quotes you get should be from the same time period.
14. Submit a neat application form. It will be read by a human being; appearances count.
15. Don’t pay up-front fees to anyone.
If your credit is bad, these are a waste of money anyway. You’ll still be declined, or offered bad terms to fob you off.
17. If you have a good credit rating then you should get a good rate.
This is not necessarily always the case, however. You see, a loan is like any other good you buy in a shop; the vendor may try to get you to buy a pricier one.
18. Don’t sign papers without reading them.
19. Keep a copy of every cheque you write for your loan.
20. In the UK, if your credit is bad, or you get into trouble with your loans, get in touch with the CCCS: the Consumer Credit Counselling Service http://www.cccs.co.uk.
They’re the real McCoy, unlike many others.
21. If you have problems with repayment, write to your lender as soon as possible.
The earlier you tell them, the more sympathetic they’ll be. You can then make arrangements for under-repayments until you get back on your feet.
T. O’ Donnell is a credit broker offering personal loans (UK), secured loans (UK) and mortgages (UK) in the city of London.