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How to get it right when it comes to borrowing? This can be so hard given the number of options out there. Payday loans. Guarantor loans. Unsecured loans. Peer-to-peer loans. Overdrafts. Debt consolidation loans. Secured loans.
There are so many types of personal loans that it can all get a little bit confusing and overwhelming. And then you’ve got to worry about finding a reputable lender, the APR, whether you can afford the repayments, whether the lender has a good reputation, etc.
So we thought we’d give you some top tips for every stage of the journey – that way, you’ll know how to get it right when it comes to borrowing.
How to get it right when it comes to borrowing: choosing the right type of loan for you, choosing the right lender and avoiding some common pitfalls
#1: Choosing the right type of loan for you
If you’re still in the initial overload phase of trying to borrow money — where there are too many options (or not enough options) — and you’re wondering how to get it right when it comes to borrowing, don’t panic. To start narrowing down your choices, make sure you have:
- Worked out how much you’d like to borrow and what you’re borrowing it for
- Checked your credit score (with all three agencies)
- Worked out how much you can afford to repay every month
This will give you a good starting point for finding the best ways to borrow money.
As you’d expect, there is lots and lots of information about borrowing money on the internet. So, short of visiting a financial adviser, how do you find the best loans that are right for you? Last year, we put together a quick multiple choice quiz that gives you a rough idea of how to get it right when it comes to borrowing the money you need. It goes through everything from your credit score to why you need the money and gives you an idea of what loan is right for you. Why not start there and use that to narrow down your choices?
#2: Choosing the right lender
Now you’ve got a better idea of what type of loan is right for you, it’s time to move onto the second step of the process: finding the right lender for you. This is half the battle when you’re thinking of how to get it right when it comes to borrowing. The type of loan you’re looking for is obviously going to narrow the field quite a bit.
If you’ve got good credit, you’ll be looking for a lender that specialises in lower-interest, unsecured loans for people with good credit, while if your credit rating is less-than-perfect, you might be looking for a lender that specialises in helping people get back on their feet and repair their credit score.
There are a number of ways you can go about finding a lender for you. The first (and most common) is to head to Compare The Market and directly compare the type of loan you’re looking for. You’ll be able to enter how much you want to borrow (and for how long) and then see every single offering available.
However, this doesn’t mean that you’re eligible to borrow from all of those lenders.
Instead, you have to go through one-by-one to see if they are willing to lend to people with your credit scores (which can get a little time consuming).
Instead, it’s often quicker to head to good old Google and type in exactly what you’re looking for. In this instance, let’s assume that you’re looking for a guarantor loan with an instant payout. Head to Google, type in ‘guarantor loan instant payout’ and look down the first couple of pages to find a number of options of lenders willing to lend to you (with a guarantor).
The next step is a little time consuming, but it involves going through the soft-search loan calculator and checking for these things:
- That you’re eligible to borrow from them
- The APR and interest
- That you can afford monthly repayment amount
Pay close attention to the APR. This will take into account any additional fees on top of the interest! Now, you should have a rough shortlist of 3-4 lenders who offer the right kind of loans for you. All that’s left to do is narrow them down to one choice.
#3: Avoiding common pitfalls
Making sure the lender is 100% legit
Keep an eye out for the telltale signs of something slightly dodgy going on — talk of upfront fees are particularly telling — and scramble away if you don’t feel 100% confident in the lender’s honest.
No soft-search, no application
Applications to loans (and other forms of credit) make up around 10% of your credit score. That means that the more applications you make, the worse your credit score is. Plus, sending lots of applications over a short period of time is a huge red flag for lenders as, to an outsider, it looks like you’re desperately trying to find a lender that’ll give you money, which suggests that you’re either in financial trouble at the moment or are anticipating it in the near future. And neither make you an attractive prospect for the lender.
A soft-search eligibility checker minimises the risk of damaging your credit score by letting you see whether you’d be accepted for the loan before you apply. They do this by running a soft search of your credit file to see if you’re eligible for the loan, which has no bearing on your credit score. If the company doesn’t offer an eligibility check, then you’ll have to decide whether you’re willing to risk a declined loan on your credit score.
Remember: being declined for one loan makes it more likely that you’ll be declined for the next, too.
Read the terms and conditions
Although a lot of the fees a loan company might charge are usually rolled into the APR, things like early repayment charge aren’t (because not everybody will pay their loans off early). That’s why it’s very important to go through the terms and conditions of each loan you’re interested in and look for hidden fees or terms that aren’t favourable. It’s boring, but it’s more than worth the effort to weed out the companies that might end up costing you a lot more than you expected a year or two down the line.
Check how other customers have found their experiences
If you’ve narrowed your choices down to legitimate companies that have agreed to lend you money (on principle at least) and have similar interest rates and APR, then it’s time to deal with the things that are slightly less tangible: whether you’re going to have a good experience.
When you’re borrowing money, it’s natural to be stressed, nervous and a little on-edge; that’s why it’s crucial to find a company you feel comfortable with and that have a great reputation for customer service. TrustPilot allows people who have borrowed money from loan companies to rate their experience on everything from how easy it was to apply to how they found the interactions with the company. It gives you a nice little peek behind the curtain to see past all of the marketing talk and noise about loan companies online, so it’s well worth checking out to see if any of your shortlist are particularly great (or particularly bad) at customer service.
Pssst… we’re pretty proud of our 5-star TrustPilot rating. If you’re interested in what people say about borrowing from Bamboo, you can check them out here.
So there you have it, our guide on how to get it right when it comes to borrowing. Did we miss anything out? Do you have any questions you’d like answered about borrowing or how to find lenders? Let us know in the comments below!
- Author The Bamboo Team
- Posted 5 November 2018