How to avoid common personal loan pitfalls
If you can’t quite scrape together the funds for that purchase you really want, consider taking out a personal loan. We can help you decide which loan to get with our free and impartial comparison. But be sure you know what you’re getting into and can handle the repayments.
Making the repayments
It’s important to make sure you can afford the repayments or you could find yourself falling into debt. When you compare loans on buy.co.uk, your results show you how much the monthly repayments are based on the amount and term you have specified.
You can easily change your loan term and see how this affects your monthly repayments.
Draw up a budget to see how much you can afford, taking into account all possible variables. Don’t leave yourself short of cash!
Paying your loan early
The quicker you repay your loan, the cheaper it will be.
Some loans charge you a fee for paying your loan back early. It’s normally equivalent to one month’s interest, although this varies from lender to lender. You can, however, get many loans that don’t charge an early settlement fee.
If you think you may pay your loan early then opt for a loan without a penalty.
What happens if you can’t repay your loan?
If you’re struggling to pay back your loan, you need to get in touch with your lender at once. Let them know you’re having difficulties making ends meet and the reasons why. You’ll also have to work out how you are going to deal with your loan repayments and let your lender know your plan.
Your lender will discuss your problems with you and come to an agreement. They may temporarily stop charging interest so you don’t escalate further into debt.
In the worst case, your bank could make a County Court Judgment (CCJ) against you. Then you’ll have to go to court and may have problems getting credit in the future.
Protecting yourself from the unexpected
Payment Protection Insurance (PPI) protects you from the inability to pay should you get sick, injured or lose your job.
But before you sign up, note that PPI is expensive. It can almost double the cost of your loan. And it’s often added to the total cost of your loan, so you are charged interest on it. For this reason, many advise looking at independent insurance if you want cover. But it’s up to you, if you want to cover yourself then check out how it affects the cost of your loan.
Check the fine print too. Often your PPI is not valid for the first six months of your loan. And it doesn’t cover the self-employed.
Ready to compare personal loans?
Once you’ve got your budget sorted, compare loans on buy.co.uk. We ask what you want and list the loans that best match your needs. You can then apply for a great loan on our site. Compare personal loans now.