If you need some extra cash quickly, you might have considered a personal loan. When your savings aren’t enough (or non-existent!) and family members can’t support you, choosing to get a loan from a bank might seem like the best idea.
However, there are some rules you should follow if you are considering a loan. This includes the following:
Choose a reputable lender
One of the top rules when applying for a loan is to choose the right lender. There are so many out there, and some could be unregulated – so it is important to do your research. Choose a well-known brand and make sure you don’t rush into the first deal you see.
Compare loan rates and loan providers
The second thing you should always do is compare rates across various providers. It is very important that you compare rates because they vary so dramatically, and you will want to get the best deal. You should also compare repayment periods and try and look at the overall package that you are getting with the loan. You can use comparison websites, or do some research yourself. You can sometimes also negotiate better deals when you call a company and speak to them directly.
Understand the repayment details
It is surprising how many people don’t fully understand how and when they need to repay the loan, and how the interest rates work. The consumer BBC website clarifies it well; “The annual percentage rate on a loan is the amount the lender would charge if you borrowed the money for a year, as a percentage of the original loan. For instance at 40% APR, to borrow for a year you’d be charged 40% of the original loan, on top of paying it back.” Although with payday loans you will only borrow the money for a month or two, the lender is required to provide the APR rate with every loan. Additionally, the APR that lenders show you on their adverts is not necessarily the rate you will be charged. It may be just a “representative” rate. It is important to look into this to understand exactly what you must repay. Using a personal loan calculator can help you with this.
Know what you need to apply
Different loan companies need different kinds of information from you to apply for personal finance. Some will ask more than others, and the process of applying is usually quick. For instance, personal loans website Wonga will ask for a cell phone number, SA ID number, Bank account details and the last 3 months’ proof of income. Make sure you keep your salary papers and put them in a safe place so you know where to get them when you are asked to show them.
And finally… make sure you really DO need a loan
Once you have found the right loan with the best rates, before you apply, make sure you really do need this loan. Applying for any kind of credit is a commitment and if you miss a repayment, this will tarnish you credit file. It is important to check all your options before you commit to the loan. Think about what you are using the loan for too – is it for something you really need (like a car, medical emergency, unexpected bill, or education fees?) or something you just want (like a holiday or extra funds for shopping?) Thinking carefully about your financial situation means you will make a mature financial decision.