3 Important Things To Consider Before Taking Out A Personal Loan

Personal loans are a simple and easy way to borrow usually
between £1000 and £25000 and can be a good way to finance the
purchase of a car, holiday, home improvement or anything else
that requires an up front lump sum payment. The main advantages
of this type of finance is that the loan repayments are fixed at
the outset so you have the certainty of knowing how much your
repayments will be during the term of the loan. The other main
advantage is that most personal loans are unsecured which is
better for you as you cannot lose your house as you could with a
secured loan.

The first thing to consider before you take out a personal loan
is do you really have to borrow the money at all? If you have
savings, you might consider dipping into them instead of taking
out a personal loan as this would save you the interest on the
personal loan which is nearly always costing you much more money
than the interest you are earning on your savings. Of course if
you think doing this will leave your savings a little short,
then taking the personal loan may be better for you as you might
feel more comfortable. Also as taking out a personal loan is a
long term commitment, you should be absolutely sure that you can
afford it and will always be able to make the repayments.

The second thing to consider is do you already have access to
cheaper borrowing through your existing credit cards, overdraft
facilities or perhaps borrowing from a close family member? You
may find for instance that you can get a lower rate of borrowing
by paying for your purchase with a credit card and then doing a
balance transfer to another credit card of yours offering a
lower interest rate that the personal loan you are considering.

The third thing you should consider is whether or not to take
out payment protection insurance for your personal loan which
covers your repayments if you get sick, have an accident, or
made redundant. Payment protection insurance is generally
speaking very expensive and sometimes can cost you more than the
interest on the personal loan itself. Also when loan companies
tell you the APR of the personal loan, it does not include the
payment protection insurance cost so you will need to calculate
it yourself if you want to know how much the true APR of your
loan is taking into account the payment protection insurance.
You have to decide for yourself whether it is worth the
expensive price you pay for it. If you are self employed, then
the value of the cover will be diminished as it will most
probably not cover you for unemployment.