Are you in the market for a personal loan? A personal loan can be good way to raise funds for an unexpected or unplanned-for cost. But there are some things definitely worth considering before you sign on the dotted line and receive a lump sum payment of cash. Read on for our handy 7-step guide to setting up your personal loan.
1. Is there another option?
You might think a personal loan is essential but before you proceed, it’s worth looking at your overall finances. Depending on the circumstance, you might find it’s more cost-effective to access existing savings or add finance onto an existing loan.
2. Make sure your budget works
If you do decide to proceed, the next thing to consider is whether you can afford the repayments. Accessing funds through a personal loan can be an attractive solution today, but there is an ongoing repayment commitment to fulfil, so it’s essential to be sure your budget can support the cost. You can estimate your repayments using our personal loan repayment calculator.
3. Don’t let temptation get the better of you
When applying for a personal loan it’s not uncommon to discover you can borrow more than you actually need. This is the time to stay strong and not get tempted into signing up for more debt just because it’s available. Be sure to calculate your costs carefully before you pick up the phone and call: then you’ll find it much easier to limit your borrowing to your requirements.
4. Do you really need to?
It’s quite common to get hit by unexpected costs, and that’s often when we find ourselves looking for a personal loan that can help us ease financial pressure. But if your personal loan is funding a cost that is more a ‘perk’ than a need, (e.g. a holiday), it’s a good idea to carefully consider the overall cost of borrowing.
5. Get the best rate for your circumstances
If you decide you do want to proceed with a personal loan, take a close look at your interest charges and make sure they work for you. The bulk of the cost of your loan comes from the interest your finance provider charges. Make sure you negotiate the best rate possible upfront. There’s a lot of competition in the personal loans market so, if you’re an attractive customer, you should be able to secure the best package of loan and benefits to meet your needs. Current rates from AA Finance are published on our Personal Loans page.
6. Read the fine print
As with any product or service, understanding the detail is crucial when it comes to the quality of product and offer you expect to receive. You should always read the fine print and be 100% sure of what you’re committing to.
If your interest rate is dramatically lower than the rest of the market, it’s possible your provider has a different way of making money on your debt. Be clear on the cost of any fees or charges you may incur throughout the life of the loan and understand the exact terms of the agreement.
7. What if you have a problem with payment?
Much like reading the fine print, it’s important to be sure of your potential situation should you have a problem making one of the scheduled payments on your loan. At the point of signing your contract your finances may be in order, but it’s impossible to plan for the unexpected and you could find yourself out of work, sick, or unable to make your payment for a variety of reasons.
Be clear on the options available should you be unable to make a payment - including exactly how and when you should contact your finance provider. Defaulting on a payment could have a negative impact on your credit rating so you need to be upfront with your provider from the beginning to protect your position.
Personal loans are a great tool to give you access to funds you need but don’t have available. Being smart about your options will allow you to negotiate the best deal and avoid any unexpected surprises along the way. Don’t forget you’ll be repaying the personal loan for some time after you’ve made use of the funds, so it’s important to get the details right as you’ll be managing the implications for a long time.
If you’d like to know more about how personal loans work, contact the team at AA Finance on 0800 600 888 or visit our Personal Loans page for general information.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure the content is correct, the information provided is subject to continuous change. Please use your discretion and seek independent guidance before making any decisions based on the information provided in this article.