Things to consider before you start borrowing
Bank loans come in all shapes and sizes, and there's a confusing range of products to choose from. Look out for payment holidays, fixed interest rates and flexible payments; be wary of early settlement fees, variable APRs and the small print. Different people need different types of loans, so make sure the loan you get is right for you.
Getting bank loans can be a minefield, but if you do some quick homework the process becomes much easier – and you can save money too.
The first thing to consider is the interest rate, usually described as the Annual Percentage Rate or APR. The differences can be dramatic – especially if you're borrowing a lot of money over a long period. The difference between 7% and 10% doesn't look like much on paper, but it's likely to make a difference of several hundred pounds to your total repayments.
Fixed APRs are a good idea, especially at the moment when the economy's knackered. With a fixed APR if the interest rate rises, your payments won't. You can often get bank loans with very low variable APRs but you're taking a big gamble if interest rates rise.
Flexibility can be handy: some bank loans charge a penalty fee if you repay them early, while others don't. A common option is a payment holiday, where you can skip three consecutive payments if times are hard; it's worth having because you don't know what's round the corner. Some firms also let you vary your payments, so you can pay more when you're loaded and less when you're broke.
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