Looking to take out a loan to help with a large purchase? Perhaps you want to consolidate debt from several credit cards or need financial support moving home. With so many options available from different lenders, how do you know which loan is best for you? Well, don't worry, we're here to help.
Whatever you need to borrow money for, knowing how to compare loans can ensure you get an affordable, fuss-free option that suits your financial situation.
When searching for the best loan, there are a few key aspects to evaluate:
The first thing to consider when comparing loans is what type of loan you want to go for. If you're a homeowner and are looking to borrow a large amount (over £10,000), then you might want to consider a secured loan. A secured loan basically means that you have to put up some collateral to get the loan, e.g. when you take out a mortgage, you put up the house as collateral so if you fail to repay the lender can repossess the house.
However, if you'd like to borrow a smaller amount, then an unsecured personal loan will most likely be your best option. This means that the lender doesn't ask for any collateral in order to provide the loan.
Whether you go for a secured or unsecured loan, you'll want to look for a lender that offers the best interest rates and APR. You also ideally want a loan that doesn't rack up additional fees for late or missed payments.
When it comes to interest rates, generally, lower is better. However, you'll also need to consider the type of interest rate a lender is offering. Is it fixed or variable? Fixed interest rates remain the same throughout your repayment period, while variable interest may change during your loan term — this means it may go up. Can you afford the risk of your interest increasing?
Alongside interest, Annual Percentage Rate (APR) is a term you'll see in loan offers. APR incorporates the interest rate plus any loan fees. Looking at APR, therefore, can give you a better idea of your loan's true full cost.
What about other fees? When comparing loans, it's a good idea to find out what the lender may charge for late or missed repayments. This may affect your decision. Is there an upfront origination fee to cover the cost of processing your loan? If so, can you afford to pay it right away?
Some lenders also charge a fee if you pay off your loan early. So, if you're expecting an influx of money in the coming months or plan to pay off your loan ahead of the repayment schedule, check to see if the lender will apply a prepayment penalty.
Also known as loan duration, the loan term refers to the length of time you'll be making the repayments. How long will you need to repay the full amount?
When evaluating loans, consider whether you want something short or long term and look for lenders that offer the timeframe that will work for you. If a lender offers six months repayment, but you need longer, then going with them may end up in late charges and cost you more in the long run. Similarly, the longer the term you go for, the more time interest has to accrue.
Once you know the APR, any upfront costs of a loan and how many repayments you'll make, you can work out the total amount you'll owe. Even if you're looking to borrow the same amount, the money you end up paying in total will vary from lender to lender. Which one will give you the best deal?
A bit of research into a lender's reputation and dependability can help you find a trustworthy company that will support you with any issues. It's helpful to look at customer reviews to see whether borrowers have been happy with the service provided by the lender.
Loan comparison sites can help you compare loans quickly and efficiently. Rather than trawling through different websites to evaluate different lenders and loan terms, you can see a selection of them all on one page.
Some comparison sites simply show you the best deals, while others allow you to enter preferences and your personal details so you get more personalised results.
Loan comparison sites often prioritise loans that you've been pre-approved for. Pre-approval means a lender has stated that you will probably qualify for a loan if you apply. Comparison sites favour these as they are more likely to make money from the application. (They usually earn money from the lender by directing more people to apply).
Although you can be more confident you'll qualify for a pre-approved loan, that doesn't mean it will give you the best deal. There could also be lenders that aren't 'pre-approved' but may offer a better APR so it's still a good idea to compare offers from other lenders. Plus, it's worth noting that some lenders choose not to feature on loan comparison sites.
Using eligibility calculators on comparison sites uses a 'soft check' which won't impact your credit score.
If you focus solely on the monthly payment when looking for a loan, you may end up paying more in the long run.
Loans that have low repayments usually cover a longer repayment term. As you pay interest on each repayment, you could end up paying more over the duration of the loan even if the monthly repayments are slightly lower.
However, some people may find that their income does not stretch far enough to pay more than the minimum repayment each month. Therefore, a loan with the lowest monthly payment may be most suitable. The other option would be to take out a loan and not be able to make repayments — not only would that incur missed payment fees, but it can also damage your credit score.
Comparing loans is all about weighing up options available and seeing which suits your financial situation the best.
If you're looking for a low-interest, flexible personal loan, then why not take a look at Abounnd? We offer fixed term, unsecured loans between £1000 and £10,000 at representative 18.8% APR (variable) and have handy tools to show you exactly how much you'll pay overall. What's more, Abound does not charge any fees or penalties for early repayment.