Cheap Loans Explained
Whether you're looking for a personal loan or a secured loan there will be one common
denominator - you want a cheap loan, not an expensive one. Our price comparison
service will help you find the cheapest loans in the UK by comparing more than 400
unsecured personal loans and more than 150 secured loans (homeowners only). However,
there are other factors to consider when making a loan application, such as acceptance
criteria, price for risk and redemption penalties. It doesn't matter how cheap a
loan is if your application is declined because you don't fit the lender's criteria.
Are the cheapest loans always the best?
The simple answer to that is 'not always'. You have to be honest about what you
need and your personal circumstances. Just because a loan has a low APR or lower
monthly payments it doesn't mean that it's the cheapest or best loan for you. Consider:
- Price-for-risk strategies employed by many lenders
Lenders assess your personal circumstances and credit history to determine the APR
available to you. Even if your application is successful you may be offered a loan
at a different rate than advertised. According to OFT guidelines at least 66% of
customers that take out a loan should benefit from the typical APR.
- Early redemption charge
If you decide to repay the loan before the end of the term agreed at the outset
then you may be charged a fee for doing so. This is known as the early redemption
charge or early settlement fee. Weigh up your options as you may find it pays to
opt for a slightly higher APR with no early settlement charge, than a lower APR
with a penalty for paying off the loan before the end of the term.
- The cost of protecting your payments
The cost of payment protection insurance varies between lenders, as does the cover.
Even if you want to protect your payments you are not obliged to take the policy
on offer from the lender who is offering you a loan. Stand alone policies may prove
less costly and offer better protection so shop around.
So how can I find cheap payment protection insurance?
Personal loans are governed by the Consumer Credit Act 1974. You will be asked to
sign a credit agreement and you'll be bound by its terms. Insurance policies (known
as payment protection insurance or PPI) cover your repayments in the event of sickness,
accident or unemployment. In the event of death your debt could even be repaid in
full. However, this cover can be costly and some lenders will add the full cost
of insurance to the loan at the outset - meaning you are paying interest on the
insurance. In some cases they will only cover you if you are made redundant and
insurance becomes ineffective for the self-employed. PPI is available from independent
organisations and this can be worth investigation to reduce your premiums. It's
worth shopping around for the best deal.
Am I eligible for a cheap loan?
That depends on a number of factors…
Your credit profile is crucial in determining whether your loan application will
be accepted and the rate of interest you will benefit from. Our unique 'Smart Search'
will assess your credit profile so you have a better indication of the loan products
you are more likely to be accepted for. For most lenders the credit score is crucial
but each lender has a different policy and no scorecard is the same. Lenders treat
their scorecards with the utmost secrecy and this information is not shared with
moneysupermarket.com - thus we cannot guarantee whether or not you will be accepted.
However most loan providers scorecards work on the same fundamentals assessing the
'stability' of a customer and predicting the likely default ratio's based on customer
characteristics, hence moneysupermarket.com can give you a good steer on your chances
of success.
In working with Equifax we have chosen a partner with many years experience of credit
profiling and an organisation that supplies many banks in the UK and across the
world with their scorecards. Our Smart Search comparison tool gives you a further
insight into the market and aids you further in making your choice of which provider
to apply to.
If, for example, your profile has been highlighted as 'Fair' there is nothing to
stop you applying for any of the products listed in any other column e.g. the 'Excellent'
column which will include the lowest rates available in the market. However, in
this instance, you should be aware that the chances of having your application declined
are high. In such circumstances it is likely that the lender will have carried out
a credit search and as a result a 'footprint' of that search will be left on your
credit file. It's important to remember that multiple searches recorded against
your name may affect your chances of obtaining credit in the future. This is why
it makes sense to apply for products for which you are more likely to be accepted.
It is not an exact science however and there are tolerances i.e. a customer with
a 'Good' profile has a much greater chance of being accepted for a product listed
in the 'Excellent' column compared to a customer with a 'Poor' profile.
Most of the loans available in the UK are available on a 'price for risk' or 'risk
based pricing' basis. This means that not all customers will benefit from the headline
rate in the table. The results are based on your postcode and the information you
entered.
Our smart search will show you the cheapest loans based on your
individual credit score! (No record or 'footprint' will be left on your
credit history)
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