Choosing the best personal loan
Long gone are the days when you had to put on your best suit, polish your shoes, and make an appointment to visit your bank manager to grovel for a loan. Nowadays, you can apply online in a matter of minutes and receive the cash within hours.
Shopping around is also easier than ever if you have access to the Internet, as there are a number of sites which enable you to compare the cost of products.
If you don't have Internet access, keep an eye on loan adverts and 'best-buy' tables in the quality weekend newspapers for the cheapest deals. You can get loans for under 7 per cent, so anything around this mark is good value. If the APR is in double digits, it should be avoided.
Personal loans are repayable on a monthly basis. If there is a degree of flexibility then the lender may permit over-payments and lump-sum payments, both of which allow you to clear the debt over a shorter time period than first agreed.
If your personal loan is a truly flexible product then you may also be able to withdraw funds from the account on a rolling basis, providing you stay within your credit limit.
Lenders also offer repayment holidays or payment breaks, allowing you to take a break from your monthly repayments either at the start of the personal loan (known as 'deferred repayment') or at an agreed point during the term. Interest will continue to accrue on the outstanding balance and this may result in increased monthly payments so your debt is still repaid over the term agreed at the outset.
Getting accepted for a personal loan can sometimes prove difficult if you've got bad credit, have changed addresses frequently, have no previous credit history or are self-employed. There are lenders who can help those who need 'bad credit' personal loans and those who have difficult personal circumstances.
The APR is likely to be higher than that offered by a standard personal loan provider, but the chances of getting accepted are far greater.
If you are buying a new car or kitchen, the retailer will probably try to persuade you to take out its finance deal. This may be tempting as it saves you the bother of searching for finance, but it is unlikely to be the cheapest solution. You're better off searching for a cheap personal loan instead.
The advantage of arranging a loan before making your purchase is that you will be, in effect, a cash buyer as far as the retailer is concerned. You should be able to drive a bargain and perhaps get a discount, as well as saving interest on the loan.
Aiming for flexibility
Most loans are fixed, so you borrow a set amount over a certain period and pay the same amount each month to clear the debt. But there are a smaller number of flexible deals available, allowing you to overpay or pay a lump sum to clear your debt early (without penalty).
You may also be able to take a repayment holiday (which means you don't have to make a repayment for anything up to several months). You can do this at the start of the loan or at an agreed date during the loan. But you must arrange this with your lender: You can't simply stop making your repayments without warning.
Even when you take a payment holiday, your outstanding balance continues to accrue interest. This may result in higher monthly payments to ensure that your debt is still repaid over the term of the loan as agreed at the outset.
With a flexible deal, you don't have to take all the cash in one go. Instead, you may also be able to withdraw funds from the account on a rolling basis, as long as you stay within your credit limit. So you apply for the full extent of the cash you need in the first instance and then take it as and when you require it.