Applying for a loan is like breathing nowadays – it is second nature. Such is the cost of living and the stagnation of wages that most families can’t get by without help. Although it’s a sad indictment of the world today, it’s a harsh fact and one most of us need to get on board with to pay the bills.
Still, it doesn’t mean applying for a loan should be something to take lightly. The consequences are huge so you should know the fine details before continuing.
Rule #1: don’t take out a loan you don’t need.
Here are four facts which will make sure you don’t break consumer law.
1. Unsecured Loans Are Exhaustive
At least, the amount you can borrow is, because it’s limited at £25,000. Now, one-quarter of £100,000 is a lot of money and the chances are you won’t need this much cash. Still, it’s worth knowing as it means anything over this amount is secured. As a result, a valuable asset of yours will have to go up against the loan as collateral. Lots of debtors have lost homes and cars and much more because they didn’t understand the difference between secured and unsecured. Relatively small amounts are for the latter.
2. Advertised Rates Vary
Some people get the rate you see on TV but it isn’t a done deal. The way it works is through a strategy called risk-based pricing. In simple terms, two-thirds of applicants must be offered the contract for the lender to market it as a fact. However, that leaves 33% of people who apply open to a different rate. And, if you don’t get the best deal, you’re bound to get something more expensive. Again, this catches people out all of the time so be sure to double-check the amounts before signing on the dotted line.
3. Everything Has An Impact
Okay, not everything you do impact your credit score yet seemingly benign stuff can have an adverse effect. For example, applying for a loan in the first place might reduce your score. A hard inquiry will knock off anywhere between two to five points. Soft requests, on the other hand, don’t impact your rating whatsoever. Therefore, it’s important to ask “how long do inquiries stay on credit report and which one am I dealing with now?” A good tip is to get pre-approved first as this softens the blow should you get rejected. Also, knowing your score is a savvy move too.
4. Fees Might Be Hidden
Probably the best example of this is an early repayment charge. Most lenders should be happy that their money has been paid back early but they aren’t. Why? It’s because they lose out on interest. As a result, they put in a clause which says you will have to pay at least three month’s worth of interest if you clear the balance early. Other hidden fees include late payment charges as well as arrangement fees.
Before you apply, do you know everything you need to about your loan?