How to Pick the Right Type of Loan

If you have decided that you need to borrow some money then it is really important to make sure that you choose the right sort of loan. There are so many types that you can choose from and if you pick the wrong one you could end up paying a lot more than you need to as well as not getting the service that you need. Therefore, you need to make sure that you get it right. Before you start to look make sure that you have some information to hand –

  • How much you want to borrow
  • How much you can afford to repay each month
  • How long you want to borrow it for

It should be fairly easy to work out how much you want to borrow based on what it is that you need the money for. Compare prices though, if it is an object you are buying to see whether you can get it cheaper, so that you can borrow even less. Try not to borrow more money than you need as this will end up costing you more money. Think about how much you have available to use for repayments. Not all loans have a specific repayment schedule but if it does, you need to be sure that you will be able to afford it. Work out how much you can afford by looking at past bank statements and seeing how much money you usually have available each month once you have paid out all of your bills and bought everything that you have to. Think about how long you are prepared to have a loan for. You might be reluctant to have one for too long, perhaps because you have other financial commitments in the future or because you just do not like the idea of having a loan for long or you might decide that you just want to have a loan for as short a time as possible.

Once you have this information you will be ready to look at the different loan types and choose the right one for you. Some are designed for specific purchases such as a mortgage, car loan or student loan. A personal loan tends to be for higher amount compared with a credit card, overdraft or payday loan. So, the amount that you want to borrow will influence the types of loans you can choose from as well as what you are borrowing for. If you are looking for a short term influx of cash however, is a great choice.

You should be able to find out how much the repayments will cost for each loan type so that you can work out if you can afford them. Some loans have no repayments or very few, such as an overdraft or credit card. An overdraft just gets repaid as money goes into the account and a credit card only need you to repay a very small amount each month if you wish to.

Borrowing can take place over a fast or slow timescale depending on the type of loan you choose. A short-term loan, such as a payday loan has to be repaid within weeks, an overdraft or credit card can be repaid whenever you like. A personal loan will have scheduled repayments but you may be able to pay back extra, so that you repay it earlier, depending on the lender’s terms.

It can take time to work all of this out, but once you have done it for one loan, then it will be easier to do if you decide to borrow again. It will also allow you to be aware of the costs of loans and it may help you to think harder about borrowing and whether it is worth it or if you can afford it. You could find that by avoiding a mistake by picking the right loan, you could end up saving a significant amount of money compared with picking an alternative. It is certainly worth the effort if this proves to be the case for you. Even a small saving could make a big difference if you find money to be a struggle.  You may find that there are loans that you decide to consider that you did not know existed before and it could therefore open up your options and help you to have a lot more choices,

Once you have worked out which loan looks to be the best type for you then it is really important to compare the lenders that are offering these loans to see which will be the best for you. There are lots of lenders out there and so you will find that they vary a lot, not only in how much interest they charge but, in their fees, customer service, reputation and things like this so make sure you check them out thoroughly and compare a lot in order to ensure that you get the best deal for you.

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