Considerations before you get a loan or finance

It's important to understand what you're getting into - always seek financial advice before you borrow money. We've listed a few things to think about before you get finance.

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The type of finance you need

There are several finance options available. Research the different types of loans available. Before choosing, you should decide:

  • How much money you need
  • How long you need it for
  • How you want to pay it back

Affording loan repayments

How much you borrow will depend on what you can afford to repay. Work out how much money you have left after paying rent or board, the mortgage, for food, bills, transport, personal costs and other loans.  How much you can afford to spend on loan repayments from what is left over?

Needing a guarantor

Depending on factors such as your age or credit rating, you may need a loan guarantor. A guarantor is someone who will be asked to repay the loan if you can't. The guarantor needs to be someone prepared to take on that responsibility

Know what you're signing up for

It's crucial to read and understand the finance terms and conditions. You need to know:

  • The true cost of the loan, including additional fees and charges
  • The repayment plan, including the number of repayments, how much each repayment is and the repayment due dates.

Remember if you can't pay back the loan, you could lose your security (e.g. your car).

Credit ratings

A bad credit rating could make it harder for you to get finance. You may have a bad credit rating if you've had trouble repaying a loan or bill in the past that resulted in legal action being taken against you.

Loan protection insurance

Loan companies usually offer loan protection insurance. This insurance is optional. It can cover your loan repayments if you can't make them because of redundancy, sickness, disability or death

You've got the loan - what comes next

Under the terms of your finance agreement, you'll need to make regular loan repayments. Stick to the loan terms to avoid extra fees or repossession of your loan security (e.g. your car). Early repayment penalties may apply, so check your loan agreement before paying your loan back early

If you can't make the repayments

If you can't make the loan repayments, contact the loan company immediately. They will help you work out a solution. Most loan companies also offer loan insurance. If you can't make repayments because of redundancy, sickness, disability or death the loan insurance will cover them

Making changes to the loan

You might want to borrow more money or consolidate existing debts into one loan. Find out before you sign up what you'll be able to do later or if you already have finance, contact the loan company to discuss your options.

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