8 things to check before you apply for a loan
If you want to make home improvements or buy a new car, personal loans can give you a helping hand. But before you apply for a loan, there are a few things you need to know.
1. Is a loan the right option?
Personal loans aren’t the only finance choice available. If the amount you need is relatively small and you’re sure you can pay it back quickly, a credit card with an interest-free period on purchases could be a better option.
2. What are the repayments?
The most important question to ask when you apply for a loan is: “Can I afford it?”, so you need to know how repayments will affect your overall budget. Some loans have variable interest rates so the amount can increase if interest rates rise. It’s important to make sure you can afford this before you get a loan.
3. Is the loan secured or unsecured?
A secured loan is one where you provide an asset as security. The asset is at risk if you can’t pay the loan back. With an unsecured loan, you don’t provide security, but the amount you can borrow is smaller – up to £25,000. HSBC offers both secured loans – in the form of mortgages - and unsecured loans.
4. What's the term of the loan?
This affects the amount of interest you’ll pay, and consequently, the overall cost of the loan. Terms for most personal loans will range from one to 8 years.
5. What exactly are the fees and charges?
Loans are advertised with a ‘representative APR’. Your financial history and personal circumstances, as well as how much you are borrowing, will determine the rate you receive, but you can use the representative rate as a way of comparing available offers. You should also be on the lookout for any additional charges associated with taking out the loan, for example some lenders may charge an arrangement fee. These, together with the interest rate, can make a big difference to the overall cost of the loan.
6. Is there a penalty for early repayments?
Some lenders will charge you a fee for paying a lump sum or paying off your loan early. Make sure you check before you apply for a loan.
7. How’s your credit report looking?
Your past borrowing and financial history can affect whether you get a loan, as well as the amount of money and interest rate you’re offered. Credit reports detailing your financial history are held by the three credit reference agencies – Callcredit, Equifax and Experian. You can see them for a £2 fee. It can be a good idea to check, if only to make sure there are no mistakes on your file.
8. Are you ready to apply for a loan?
Getting a quote for a loan won’t usually appear on your credit report. But making an application often will. Too many applications can make a negative impression on lenders, so it’s wise to be sure that a particular loan is right for you before you apply.
Did you know...? You can change your mind about getting a loan. There’s a 14-day cooling off period from the date you sign the agreement.