Beginner's Guide To: Personal loans

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The Independent Online

Loan rates are starting to gradually fall, however, providers continue to be very selective on who they will offer their best deals to with many of the most competitive products available to existing customers only.

All is not lost however as there are still some great deals out there, so what do you need to be aware of when shopping for a loan?

Application and checks

With providers still cautious about lending it is imperative that you complete any application in full and as accurately as possible because the information you provide will be checked against your credit file.

Lenders will pick up on any discrepancies which in turn could delay your application pending further information required from you. In the worst case scenario, your application could be declined.

A "footprint" is left on your file each time you apply for credit and if you have a number of applications declined it can negatively impact your credit score, thus further reducing your chances of obtaining a loan or credit card.

What is personal pricing?

The key thing that prompted you to apply for a particular loan is likely to have been the rate of interest. However, did you know that the rate you see advertised may not be the rate you are offered? Most providers advertise a "typical" annual percentage rate. This must be offered to 66 per cent of successful applicants, which means there is a one in three chance that you'll be offered a higher rate. The rate you are offered will depend on your credit score.

Some loan providers have adopted personal pricing which means a typical rate can't be advertised and you won't know what rate of interest you will be offered until you've made an application.

The payment break

The terms and conditions of many loans allow you to defer your repayments for one, and sometimes three, months. This may seem an attractive option but bear in mind that you will be accruing interest during that time so the loan will cost you more.

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