If you are short of money, you can take out a personal loan to cover this period. But don’t take the search for a loan lightly. By choosing the right formula, you can save hundreds or even thousands of GBP.
Loans come in all shapes and sizes. If you want to install a solar boiler, you can apply for a green loan. People who want to buy a house can take out a mortgage. However, these loans are not available to everyone. If you want to take out a specialised loan, you must have the necessary documents. For example, in the case of a work loan, you must be able to prove that you will use the capital for a renovation. Anyone who is not able to submit an offer or invoice will not receive a special loan.
Is about :
- Advantages of a personal loan
- Playing with maturity
- Align the term with the monthly budget
- Caution in case of small loans
- Consider a credit card
Benefits of a personal loan
But what if you want to buy new furniture, or if you’ve noticed a big-screen TV? In these cases, you can take out a personal loan. Unlike a car loan, for example, you don’t need to prove why you need the capital. However, there are certain restrictions in the law. For example, you cannot use the money to finance an illegal activity or to buy a pet.
The freedom you get with a personal loan comes with a higher price. While many lenders usually charge a flat rate for a specialized loan, the rate for a personal loan depends heavily on the length and amount of the loan. It is therefore not easy to find the cheapest product.
Playing with maturity
The maximum term of a loan depends on the amount of the loan. This is a legal requirement. Depending on the amount of the loan, the maximum term is between 24 and 240 months. As long as lenders respect the above-mentioned limits, they are free to determine the duration of the loan. Many lenders try to steer you in a certain direction. They do this by giving you favourable rates if you keep your loan within certain limits.
|BORROWED AMOUNT||MAXIMUM REPAYMENT PERIOD|
|500 – 2.500 GBP||24 month|
|2.501 – 3.700 GBP||30 month|
|3.701 – 5.600 GBP||36 month|
|5.601 – 7.500 GBP||42 month|
|7.501 – 10.000 GBP||48 month|
|10.001 – 15.000 GBP||60 month|
|15.001 – 20.000 GBP||84 month|
|20.001 – 37.000 GBP||120 month|
|More than 37 000 GBP||240 month|
If you wish to benefit from the lowest rates, it is preferable to limit the duration of your loan to 48 months. Different lenders are then prepared to lower the rate below the 6% limit. This is the case for at least 12 of the 22 lenders (for an amount of 20,000 GBP), according to our comparison. If we increase the term to 72 months, this number will rise to 4. The number of loans available falls to 18.
Aligning the term with the monthly budget
Our calculation shows that in some cases you can save 1,500 GBP or more if you reduce the duration by one year.
We take the example of the personal loan from DHB Bank. DHB Bank applies a rate of 4.9% for loans with a maximum term of 72 months. The rate increases to 6.5% if someone chooses a longer term. If you borrow 20,000 GBP in this example and spread the loan over 84 months (instead of 72 months), the price will increase by more than 1,700 GBP. Find out how much you can save by playing with the different maturities.
In the example above, the monthly payment increases by 25 GBP if you choose a shorter term. In this case, we can say that the final savings outweigh the limited increase in the monthly instalments.
However, the monthly repayments will become considerably heavier if you shorten the term. Therefore, always check whether the rate drops sufficiently if you opt for a short term. Also calculate whether the higher monthly payments are not too much of a burden on the family budget.
Be careful with small loans
Small loans are not interesting for lenders. Due to legal limits, the repayment period is limited. This means that the lender receives less interest. The longer the term, the higher the accrued interest. They try to discourage small loans by charging higher rates.
For example, if you borrow 2,000 GBP, you must repay the loan within a maximum of 24 months. In this situation, only two banks apply a rate below the 5% limit: Beobank with Comfort Loan Plus (4.99%) and Buy Way (4.89%).
With the most expensive players, you pay 12.5% for a small loan. If you borrow 2,000 GBP and spread the repayment over 24 months, you can save 150 GBP if you exchange the most expensive loan for the Buy Way loan.
Consider a credit card
If you wish to borrow a smaller amount, you can apply for a credit card. If you choose to repay the borrowed capital in the next few months, you do not have to pay interest. For other credit cards, it is possible to spread the repayment over time. In this case, you will owe interest to the lender. The annual percentage rate of interest can be as high as 14.49%.
It’s true that many credit cards come with many extras, such as travel insurance, non-life insurance, extended warranty… Want to know which credit card is best for you? Make the comparison here.
Soon we will announce which credit cards are the best in the country. Keep an eye on our site!