Published at 14:08, Tuesday, 23 October 2012

In the current economic climate, many people need to get hold of cash quickly to tide them over. Recent figures from the Office for National Statistics show that the level of consumer debt has risen relative to disposable income for the first time since 2008.

A loan from a reputable financial institution is often the best way to raise money as the repayment can be spread over several years, making the loan more affordable. Money obtained through a loan is also available instantly, which puts you in a strong position when negotiating a discount on a high value major purchase.

Factors to consider

Taking out a loan is a serious matter which can have far reaching effects on your future credit rating. For this reason, anyone considering taking out loans should do their research and make sure they have considered all the aspects, namely:

1. How much you can afford

It’s not always wise to borrow the largest amount you can or apply for several loans, as high levels of debt could make it harder to keep up with your repayments. You should work out how much you can afford to borrow depending on your monthly income, job stability (a major consideration in these uncertain times) and other existing debts, including your mortgage, student loan and financial commitments.

2. How much you can borrow

Although this will depend on the lender, the minimum amount for an unsecured personal loan is usually £1,000 and the maximum sum you can usually borrow is £25,000. The maximum amount is not guaranteed, as the lender will have to look at your credit scoring before deciding how much to lend you.

3. Interest rates

It’s best to confirm what rate of interest a lender will charge you before agreeing to a loan. Don’t assume that you’ll be charged the advertised rate when applying for a loan. Not all applicants will be offered the same rate as this will depend on the bank’s assessment of your credit rating. When working out your eligibility, loan providers take into account your age, salary, repayment and credit history, savings, occupation and other debts.

4. Penalties and charges

Before agreeing to a loan, read the Terms and Conditions carefully and make sure you know about any charges, penalties or fees charged by the lender. These include penalties for failing to keep up with monthly payments. You should also check if the lender will allow you to switch your loan to another loan provider if you wish to do so in future, particularly with long term loans, and if they will charge a penalty or fee for early repayment of your loan.

5. Effect on your credit rating

You should be aware that multiple applications for loans, particularly within a short period of time, will affect your credit rating. However, when used properly, taking out a loan can also improve your credit score. This requires financial discipline to make sure you keep up with monthly payments and repay the loan in good time.

Having a good track record of repaying money you borrowed will make it easier for you to get any kind of loan, including a mortgage, later on. You may well be charged a lower rate of interest in future too if lenders consider you to be a responsible borrower.

Published by http://www.nwemail.co.uk