Things to consider before getting a loan
There are lots of lenders offering loans. There are a few things to look out for when comparing loans, working out the cost of each one and choosing the right one for you. These are:
Don't just look at the interest - if you're comparing two loans with the same APR, but which are repayable over different lengths of time, the total cost will be different. The APR includes the total interest and other charges, per year. So a loan you have a longer number of years will mean more interest paid in total over the course of the loan, even though the interest rates appear the same.
Make sure you can afford the repayments - the APR covers the cost of the interest and charges, but what is the actual amount you'll be repaying each month? And is the interest rate fixed or variable? If it's variable this means it's subject to change and can go up as well as down.
Find out what the monthly repayment cost will be. If it's more than you feel comfortable paying, you could think about extending the length of time you take to repay it. This will give you a lower monthly payment, but might cost you more overall as you'll be paying more interest.
Be aware of all the charges there may be more to the cost of a loan than the interest. Check if there is a penalty if you choose to repay the loan earlier than the agreed term. Sometimes you can incur a hefty interest charge or admin fee on the last month's payment. And, if you're late paying, because a direct debit bounces for example, you may be charged by the loan company and your bank. So be sure you know about all the potential charges up front.
Think about how you'll pay if your circumstances change - most loan providers offer optional insurance to cover your payments in the event of you losing your job and being unable to continue paying. This insurance will add to the overall cost of your loan, but give you some protection in the event that your circumstances change. If you were unable to work through illness, or you lost your job, would you still be able to pay? If you don't think you would, you might want to consider insurance, but it's entirely up to you, you should never feel pressured into taking on any insurance.
Find a reputable lender when looking for loans, use a comparison website, or talk to your bank or an independent financial adviser. Be extremely cautious of loans offered by companies you have never heard of, and always do a little research to ensure they are reputable. Be on your guard with emails offering financial products, even if they appear to be from a reputable lender. If they ask for any personal information, or you suspect they are not genuine, report it to the lender and/or delete it immediately.
Before taking out any kind of loan, check that the provider is registered with the Financial Services Authority - this means you will be able to get support if you need to make a complaint.