How to Secure a Personal Loan

by Andy Hough on March 7, 2012

The cost of borrowing has been falling since the beginning of 2012 with interest falling at most of the high street banks such as Santander. The drop in interest rates has been most marked for higher value loans and the best deals continue to be offered to existing customers as lenders perceive them as less risky.

However, loans are still not cheap and it takes plenty of scouring the market before you come upon a loan that suits. Then of course you need to be accepted for the loan, which is becoming increasingly difficult. However, there are ways you can make yourself more appealing to lenders.

Santander is currently offering one of the best loans on the market. Its personal loan from £7,500 to £10,000 has an APR of 6.9% with fixed repayments from one to five years. But how do you get the advertised APR rate?

Your credit rating has a huge impact on your chances of getting a loan. A good credit score will mean you’ll have access to the best loans and most attractive interest rates. A bad one on the other hand may prevent you from getting any kind of credit at all. Check your credit rating before taking out a loan. If it is poor don’t bother applying for a loan as every application, and refusal, is noted on your credit history and will affect your credit score going forward.

Clear any outstanding debts before applying for a loan and cancel unused credit and store cards. The bank will look at your monthly outgoings when it is considering your loan application. If it believes you will be overstretching yourself by taking out a loan your application will be denied.

Never borrow more than you can afford. It may sound like a good idea to borrow a larger amount when the interest rate is attractive, but if you look to be overstretching yourself or worse still, look greedy, you will be denied outright.

Take into account all the other fees, payments and charges associated with loans. For example, you may be charged an arrangement fee and a penalty for paying early as well as late. All of these costs should be factored into your budgeting.

It’s a good idea to go to the bank fully prepared, as you are more likely to be taken seriously. Draw up a budget plan showing how you will pay back the loan and also detail what you plan on using the loan for.

Sometimes it is better to go for a more expensive loan. This is because you are more likely to be accepted onto a loan scheme where the interest rate is a little higher than the main offer rate. Why would you do this? You are more likely to be accepted. This means you won’t get any black marks put on your credit rating and if you credit rating is poor this is a great way of improving it.

This is Money has some great tips on how to choose the best personal loan.

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