4 Mistakes to Avoid When Considering a Personal Loan

Loans are useful in different situations. Whether you have a gap in your monthly budget or a big purchase to make, there are financing options you can now consider as the right solution. In the case of personal loans, you can also deal with financial emergencies and get the money you need quickly.

There are even more personal loans to choose from, especially with lenders now competing in a more saturated market. This means you can find better deals, more features and services, and of course faster application process; these are the features you can benefit from.

Just because you can take out a personal loan easily, doesn’t mean you should use the loan in every situation. There are some common mistakes many people still make when it comes to personal loans. Here are some of the mistakes you want to avoid when taking out a personal loan for yourself.

Comparing the Monthly Instalments

Many personal loans are designed to be affordable. They have low monthly instalment amounts and come with flexible loan term that you can adjust accordingly. If you want to keep the monthly repayment amount low, for example, you can extend the loan over a longer period of time.

However, you should never compare personal loans based on their monthly repayment amounts alone. The amount you pay every month does not always represent the cost of using the loan in a fair way. In fact, it is not always possible to tell how much of the monthly repayment gets allocated towards the loan’s principal amount.

Keep in mind that there are other cost elements added to the monthly repayment amount. Aside from the interest, you also have to deal with fees every time you make a payment towards the loan. If you do want to compare personal loans, review the total cost of using the loan objectively.

Not Considering the Costs

We usually take the interest rate as the cost of using a personal loan. This is why many still compare personal loans based on their interest rate. While there is nothing wrong with reviewing the interest rates of personal loans you are comparing, the rates still don’t tell the whole story.

Aside from the monthly fees, there are also fees and charges that you have to deal with when taking out the loan. Some lenders charge a withdrawal or transfer fee when they transfer you the money. Others have additional charges such as origination fee, credit report fee, processing fee, and even prepayment penalty if you decide to settle the loan early.

These cost elements need to be considered thoroughly if you are serious about getting the best deal on your personal loan. They may seem small at first, but they can quickly become substantial when you start adding them up.

Accepting the First Deal You Come Across

Similar to other big decisions, you should never go for the first personal loan you come across. While we’ve been talking about the different factors to consider when comparing loans, many still go for the first personal loan deal they find just so they can get the money they need quickly.

This is a big mistake to make in a market as competitive as it is today. Lenders are working harder to win your business and there are more deals and special offers than ever. Taking the time, even if it is only five minutes, means finding more deals to look into. Don’t be surprised to find personal loans with lower charges, more manageable terms, and lower interest rate in general.

While you are at it, try contacting the lender directly and asking for a better deal. Mention that you are comparing loans from multiple lenders and that you are trying to save on the cost of the loan. This will also land you a much better deal on the personal loan.

Borrowing More Than You Need

Just because you can take out a personal loan in a couple of hours, doesn’t mean you should. Just because you can now get loans of up to £500,000 from select lenders, doesn’t mean you should either. Loans are still liabilities that need to be repaid, which is why you must always measure your ability to repay the personal loan before deciding to apply for it.

Ideally, you want the loan repayment amount to take up no more than 30% of your monthly income. This will make the loan (or loans) easier to handle. You also have the option to repay the loan sooner and save on interest rate and other charges, as long as there is no prepayment penalty stopping you from doing so. Obviously there are also other types of loans on the market too should you want something a bit more feasible.

By avoiding these mistakes, you can utilize the wealth of financing options and personal loan deals available today and reap the most benefits from them. The better you are at avoiding these mistakes, the more valuable your next personal loan will be.

Simple Ways to Save on Your Next Car

Buying a new car is a big decision to make, but it is also one of the most exciting. There are more cars to choose from – including the new generation of electric cars entering the market – and plenty of ways to customize the car further. You also have more financing options to help you buy the car of your dream.

Nevertheless, you still want the total cost of owning the car to be as affordable as it can be. There are several things you can do to save on your next car, and we are going to look into the best tips and tricks you can use in this article.

Set a Budget

It is very easy to get carried away when there are so many options on the market. An extra £10 in monthly repayment is not that much, is it? Only £50 more per month is something you can handle, right? That’s the lure of the market right now.

Yes, it is tempting to go for a more expensive car when you look at the slight bump in monthly instalment. You may find a luxury model (seemingly) affordable; you might even go for it. However, you will still end up paying more for the car.

Let’s not forget that higher-end cars are often more expensive to run and maintain. A BMW is certainly more expensive to service than a Honda. The £50 extra on monthly instalment will eventually turn to hundreds in extra running and maintenance costs.

So, what is the best way to avoid this issue? Set a budget from the start. Figure out how much you can actually spend on the car and stick to that budget. Having a clear budget in mind will also help you narrow down your search for options you can actually afford.

Compare Your Financing Options

Never go for the first car loan you come across, especially the one that the dealer offers. The loan is the most convenient one to take out, but it is not always the most affordable on the market. Now that you have loan comparison tools available online, there is no reason why you shouldn’t get quotes from multiple lenders before taking out a car loan.

While you are at it, make sure you also compare deals and special offers. Both the car market and the loan industry are very competitive right now, so you will find plenty of deals to look into. Some car loans come with 0% interest for the first several months. Others offer you £1 down payment and other discounts to make the loan more affordable.

Consider Your Down Payment

Speaking of £1 down payment offers from top lenders, setting the right down payment amount is also a great way to save on your next car. The principal amount of your auto loan depends highly on the amount of your down payment, which means you can lower that principal amount from the start.

With a lower loan principal amount, you actually pay a lot less in interest. It is possible to save hundreds on interest alone just by increasing the down payment of your car loan.

The only time when zero or small down payment makes sense is when the car – or the money allocated for down payment – is used for productive purposes, such as for going to work or for running your business. The return you get from having a car outweigh the money you save on interest in these cases.

Buy Used

We really can’t talk about how to save on your next car without talking about the used car market. You’ll be surprised by how many new cars are available in the used car market just weeks after they were released.

It is not uncommon for people to sell their new cars after a few weeks. They may not be able to keep up with their instalments or their financial situation isn’t what they expected it to be, and selling the car is their only option.

These barely-used cars are much more affordable than the new ones, even when they are of the same make, model, and year. You can save up to 30% on the car by buying used. You can save more than that by going for slightly older models.

Think Long-Term

One last thing you need to keep in mind before signing that loan agreement and buying the car: consider the long-term costs. Aside from running and maintenance costs we discussed earlier, you also want to consider the car’s insurance premium and depreciation.

These are the tips you can use to find the best car to buy and save a lot of money on the purchase. Now that you have more models to choose from, great deals to benefit from, financing options to help you make the purchase, and these tips we just discussed in this article, buying a new car can be exciting and affordable at the same time.