Loan Shopping Guide
Due to the massive range of choice available to UK loan shoppers, deciding on which loan plan is the right plan can sometimes be quite daunting. In order to decipher as to which product is right for your circumstances, there are a number of factors at work, which should be both considered and reviewed before you start your search.
This guide has been provided to help shoppers better understand the range of personal loan products which are currently available within the UK, and to also identify the most important plan variables which are associated to almost all forms of UK loans.
To Secure or not to Secure...That is the question
Before you even start to consider annual percentage rates, length of payment and possible plan incentives, you will firstly need to decide if you're intention is to secure a prospective loan against your property or if to take the more traditional unsecured personal loan route. There are a number of advantages and disadvantages to both avenues, but unfortunately the choice between the two is only available to homeowners (non-homeowners instantly qualify for unsecured). We have provided in-depth reviews of the major differences between these two options in other sections of the site, however for your convenience a brief synopsis of the potential benefits and drawbacks can be found in the table below: -
If you are a homeowner, we would suggest weighing up all of the pros and cons associated to both types of borrowing before making your final decision. Personal circumstance will most likely dictate the overall outcome, but it is important to apply serious thought to such factors as term, loan amount and credit history. If you do decide to pursue the secured route you must also remember that your home may be at risk should you fail to meet the agreed terms of the loan.
Loan Term
The term or desired repayment duration of a personal loan is vitally important to most borrowers. In order to ensure that you apply for the most suitable product, we would advise that you spend some time in deciding on the period in which you would like to stretch your repayments across. There are a number of reasons for doing this, primarily however, having a rough idea as to how long you need to borrow will often determine the type of base loan that you should pursuit e.g. secured or unsecured. As demonstrated in the above table, if you're intention is to borrow over an extended period of time, say 15 years, an unsecured loan may not be the most suitable option, however if you're intention is to borrow over a shorter period, say 5 years, and providing the amount requested is realistic and credit history permits, then an unsecured loan would most probably be the way to go.
Knowing the desired loan term can also enable the savvier borrower to streamline their potential choices, by eliminating those providers whose plans require the applicant to commit over longer periods of time. This course of action is an extremely efficient way to shop for finance, however, it also requires the applicant to have a thorough understanding of the market and/or research all UK providers, independently, in order to get the best return and to compliment their intention.
Employment Status, Credit History and Financial Circumstance
The UK's loan market is comprised from a multitude of different lending outfits ranging from high street banks and building societies, public limited supermarket chains, car breakdown firms and specialist providers. The most distinguishable feature between these institutions is born from the unique sector of the borrowing market in which they operate within. For example, certain lenders will only be prepared to provide finance to individuals whose credit history is near perfect, are in full time employment and own their own home, whereas other providers will cater for the opposite end of the spectrum, providing loans to people whose credit history is patchy at best, are self employed or even unemployed, and do not own the own home.
Each provider will work to a set of specific guidelines offering products whose unique features such as APR and loan term, are a direct reflection of the qualifying criteria that has been laid out. In other words, in order for an applicant to qualify for the most competitively priced plans they will be required to prove that they are, themselves, a low risk proposition. For most providers this would essentially mean that the applicant is in full time employment, has a long-standing, positive history of credit and will most probably own his or her own home (in the case of a high value, long term loan).
In order to get the most out of your loan search we would advise taking some time to consider how you feel a lender would view you as a prospective borrower, in respect of your Employment, Credit and Financial status. This exercise is by no means compulsory, but it may help to both reduce your chances of disappointment and ultimately increase your chances of success.
Optional Extras, Loan Insurance (PPI)
In addition to loan value and term, other factors which may sway your decision to go with provider (A) above provider (B) could arise from a specific feature offered through a certain plan, that you feel would be beneficial to your needs. Common examples of such features would include: -
- Cash back incentives on completion or confirmation of the loan.
- Mid term or pre term repayment holiday.
- Express fund transfer on confirmation of acceptance.
- Discounted introductory rates on other financial products, such as credit cards.
In almost all circumstances, plans carrying such incentives will be well promoted by their providers and thus easily comparable against the rest of the market. These types of loan extras are also extremely popular amongst the borrowing community and are often bettered by competing firms as a means to lure the applicant in. For this reason we would advise consumers to be extra thorough in their search of such plans and to always review the terms and conditions rigorously before you commit.
Another optional extra that you may wish to couple into your plan is
loan insurance or PPI. PPI is a unique form of insurance that is used by
borrowers as a means to protect themselves from their repayment commitments
in the event of redundancy, illness or disability. If you are considering
or do decide to take out loan insurance, it is vitally important to weigh
up all of the pro's and cons associated to having it, as it can be quite
an expensive addition to the loan plan. For a comprehensive, expert
overview of this product please refer to our loan insurance guide.
Conclusion
As you will have probably gathered from this guide, in order to be a successful loan shopper you will need to know exactly what it is you require from your prospective loan and to also be aware as to what is available to you, whilst taking your personal circumstances into consideration. It is sometimes good practice to obtain multiple quotes in order to accurately compare the best deals available to you as an individual; however, you must also remember that such actions are likely to result in multiple credit searches against your name, which may have a negative effect in the long run.
