How to pick the right loan when its comes to selecting a payday loan it can often be stressful decision. Be sure to consider the following factors before you make your decision.
Loan Term / Duration
How long do I need the loan for? Loans such as payday loans or short term loans are often best for those who are looking to borrow money for the medium to long term, as a general rule the longer the term of the loan the more interest is paid. Other commitments such as your mortgage, credit card bills and any general household bills should be taken into consideration when deciding on the length of your loan. On the other hand if you need a short term loan and you are only looking to borrow for a few months you may want to consider payday loans or even an interest-free credit card.
Interest Rates / APR
When it comes to interest rates the obvious statement would be that always try to get the lowest possibly interest rate that you can, small differences between company’s can often add up to a substantial amounts of money over length of the loan. With this in mind be aware that often lenders with the best rates will only accept applicants with a good to excellent credit rating, other lenders will often be happier to accept with a “risk” but at a higher interest rate.
Depending on the type of loan you are applying for you should also take notice of whether your interest rate is fixed or a variable rate. A fixed rate essentially means that the interest for the loan amount will stay the same for either the entire life of the loan or in some cases a specific duration. A variable rate on the other hand is the opposite and allows your lender to adjust your interest based on external factors, this could result in significantly increase in your monthly repayments.
Fees and Redemption Charges
Our financial situations can often change very quickly and you may want to repay your loan early, paying back a loan before the end of its term may sound like a great idea but be aware of redemption charges that you may need to pay for any early repayments. While there is no set amount, an early repayment charge is usually limited to one or two months’s interest. If this is something that you may want to do it may be an important factor in picking the right lender for yourself as an early repayment charge can add up to a considerable amount.
All our lenders do not charge a application fee as we work with direct lenders but be aware of other charges such late fees payments, always ensure that you take enough time to go through the small print regardless of how long and boring it may seem.
Secured vs Unsecured
Common financial terms that are often associated when it comes to taking out a loan, secured and unsecured loans are very different so its important that you understand the terms and the risks involved.
When your loan is unsecured it enables you to take out a loan without offering up a security asset, like your home for example. For this main reason the APR’s with these types of lenders tend to slightly higher than other loans and the amount that can be borrowed is usually less than £25,000. On the other hand if you take our a loan that’s secured its often against something that you own such as your property this is held as a collateral, meaning that if you default and fail to make the agreed payments then your home could be repossessed by your lender. On the positive note Interest rates are often lower as you are considered to be of a lower risk and a higher amount of money can be borrowed against your assets.
Never borrow more than what you can afford to repay, always think twice about what the loan is for and factor in other financial commitments. Always check the terms and conditions and always speak to the lender if you are struggling to make the repayments.
We hope the above will not only help you in making a decision but also a decision that’s sensible and suitable for your requirements, some of the terms mentioned above are also mentioned in our Jargon Page. Check out our FAQ page and make an informed decision.