Practical tips to help you improve your credit rating and avoid expensive high interest loans
Taking out a loan can offer relief from a variety of financial woes. However, one of the most common mistakes people make is to dive in with two feet without thinking first.
To help you make an informed decision, we have identified the 5 questions to ask before borrowing.
This may seem like a very obvious question to ask but without knowing precisely how much money you need to borrow, it will not be possible to work out which loans are likely to be available to you and how much the repayments are likely to be.
Tip – Finding the sweet spot – It is important to find the ideal balance between not borrowing too much whilst not underestimating the amount you need, which can often result in difficulties making up the shortfall a little further down the line.
By setting yourself a realistic figure which you know will be enough to cover your needs whilst remaining an affordable amount to repay, you will give yourself the best possible chance to find the most affordable deals currently available.
There are often 2 very different schools of thought when it comes to loan repayments.
Some people like to make the repayment period as short as possible to repay the debt at the earliest possible stage, whereas other people like to extend the period for as long as possible to keep the repayments down to a minimum.
You must base your decision on your own individual circumstances. Longer repayment periods often reduce the monthly payments due to a reduced APR but you will probably pay more overall in interest as you are borrowing the money for longer.
Decide which option offers the best solution for you.
For some further information regarding short-term vs long-term borrowing, please visit – What is long and short-term debt?
When it comes to borrowing money, there are two distinctly different options available, secured and unsecured loans.
There is a fundamental difference between secured and personal loans and whilst secured loans typically offer larger amounts at lower interest rates, you must fully understand the risks involved when securing a debt against your property or vehicle.
Opting for a loan with a fixed interest rate will ensure that you can remain comfortable in the knowledge that you know exactly how much your repayments are going to be throughout the full duration of your loan.
However, as the name suggests, flexible loans can offer a greater degree of flexibility as any fluctuation in interest rate may result in your repayments being reduced. Of course, it could also result in your payments increasing as well!
The following video explores this question in greater detail –
If you find yourself in a spot of financial difficulty, the last thing you want to do is something that may negatively impact your credit rating. Nowadays, nearly all lenders have a number of strict eligibility terms for their products and if you do not tick the right boxes, your application is very likely to be declined.
Some of the major eligibility factors include:
Money Saving Expert takes a closer look at this in the following article – The 5 Golden Rules of Getting a Loan