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Choosing the Right Loan

By: Garry Crystal - Updated: 2 Oct 2010 | comments*Discuss
Choosing The Right Loan

Choosing the right loan to fulfil your needs will be dependant on a number of factors. Researching your loan options, weighing up the pros and cons of your intended loan, interest rates, credit history, and repayment terms should all be considerations when choosing that perfect loan.

Researching Your Loan Options

Many people do not actually research their various options when it comes to applying for a loan. They will simply pop down to their own branch and apply for a loan without giving the matter much though. Customers that do this are missing out on the huge amount of lenders offering low rate interest loans.

Loans and credit packages are a hugely competitive market, and if you have a good credit rating it will be worth your while shopping around. Checking out as many lenders as possible should ensure you receive the best, which means lowest, interest rates possible. Going to your local bank branch may seem like the simplest option but it does not guarantee low interest rates, and you will be missing out on a huge number of low interest internet loan providers.

Repayment Lengths

The length of loan term should also be a deciding factor when it comes to choosing the right loan. Most people are not comfortable committing themselves to long term loans, and rightly so. Long term loans may mean lower repayments, and lower interest rates, but they also mean you will be paying back more interest over the length of the loan. Is it really worth taking out a long term loan to pay for a two week holiday abroad?

Secured Loans

Both secured and unsecured loans have their benefits and disadvantages. Secured loans mean that you will have to put up your home as security as a guarantee of repayment. On the one hand this should mean you will almost certainly be offered a loan with lower interest rates but is this worth the risk of placing your home at risk. With secured loans you may also be able to borrow more money depending on the amount of equity available on your home.

Unsecured Loan

Unsecured loans mean that you will not need to provide any security, and interest rates will usually be higher that secured loans, but not necessarily. There are short term zero interest loans available, and if you can stick rigidly to the repayments then these are a great option. Remember, if you miss one payment the interest rates on zero interest loans will be racked up, and will be placed on the entire loan length.

Credit History and Loans

Choosing the right loan may not be such an easy option if you have a bad credit history. Bad credit reports will mean that your lending options are severely limited, and there may be only a few lenders willing to offer loans at reasonable interest rates. If you are willing to pay the high interest lenders then the loans should really only be short term and unsecured. The only bright spot with high interest loans is that if you stick to repayments they can help rebuild bad credit ratings.

Affordable Loan Repayments

One of the most important factors when choosing the right loan will be to make sure that you can comfortably afford the repayments. There is no point taking a loan if you think you will struggle to meet the repayments each month, this will no doubt simply lead to missed or late payments, and you will then be subject to charges, fees, and a bad credit record. Always make sure that you plan your budget before applying for a loan and can meet the repayments every month.

Loan Extras

There are host of different options and fees that come with most loans. These can include payment holidays, payment protection insurance and early repayment fees. Always weigh up the pros and cons behind these additions; will it really be worth your while paying a loan back early if you are going to be charged two months interest? Do you really need payment protection insurance on a short term loan?

Lenders are in the business of making money from their customers, and if they can get away with it they will try to add on extras to the loan. Choosing the right loan will mean that you use common sense and research your loan options. Never apply for the first loan you see and always consider your loan options very carefully.

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