Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk

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Compare the RIGHT loan - not just any loans

Which loan is right for you?

As with most articles you will read about finance, there will be a degree of generalisation, and this article will be the same.

Applying for a loan online can be tricky, confusing and baffling. There can be confusion between who is a broker and who is a lender. Who are you actually applying with? Have you compared every lender or just a selection of lenders? Are you applying for the right loan?

There is a general fear, when making an application for anything, that we won’t be accepted. It doesn’t matter whether it’s insurance or buying a house – there is a fear we may miss out. The same is true when applying for a loan – it doesn’t matter whether it’s an unsecured, secured or payday loan, there is a degree of worry that you won’t be approved. When there is a worry of missing out on something we can often be very quick to jump head first into something when we are approved – irrespective if it’s the right product for us or not.

Comparing loans - helping you make the right choice

There are many examples I could give to explain how it can potentially go wrong – I will give you one. Lets say that your car needs some repair work done. It’s going to cost £600 and you simply do not have £600. Instantly you may jump online and start looking for a loan of £600. The key aspect here is affordability – how long will you need to pay the loan back at an affordable amount. Some of you may be thinking, “why on earth haven’t you mentioned APR”? Yes, APR is used to compare loans. However, a loan of £600 COULD be applied for as a payday loan. Therefore the world of the APR could be classed as misleading – as APR is an annual interest rate and a payday loan is due on the next pay day. So, the affordability aspect is key.

You may be in a situation where you can easily afford £600 (+ interest) when you next get paid – so a loan for a few weeks (yes, the APR may be 1000%+) is in your best interests as the loan will have served its purpose and you will have cleared it. With current cost of credit caps the loan should cost no more than £744.

On the other hand you may be in a situation where you can afford £60-£70 a month to pay back. In which case a payday loan is most definitely not for you. Let’s assume that you could get approved with a rate of 49.5% APR – and there are lenders out there offering that rate – you could pay back £64.40 per month over 1 year – a much better option if you cannot afford to pay the loan back on your next pay day.

Now, just to clarify my point earlier about APRs. The 1000%+ APR payday loan mention earlier cost £744. The 49.5% APR unsecured loan costs a total of £772.75. Nearly £30 cheaper to go for the payday loan… who would have thought? Again, the key here isn’t the rate – it’s the affordability of a product that will serve you well, treat you right and let you achieve with it what you want to.

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