If you are thinking of taking out a personal loan, it’s important that you understand the terms before you agree. Here are the things you need to know before you apply for a loan.
How much can you borrow?
The amount you borrow will depend on several factors. From the lender’s perspective, they will be looking at the risk involved in lending to you. They will use this to determine the amount they will lend, the payment terms and the interest rates.
From your perspective, you should only borrow what you can afford to pay back. Bear in mind that you aren’t just repaying the loan amount, you may also have to pay interest and fees.
What type of loan is it?
Is the loan secured or unsecured?
A secured loan means that the loan is attached to an asset, for example, your car, your home or other property. If you don’t meet your repayment schedule, that asset could be repossessed.
An unsecured loan means the loan is not secured against an asset. This means a greater risk for the lender, so the interest rates are generally higher.
What are the interest rates?
The interest is the amount you pay back on top of what you borrow and is usually given as a percentage. It’s important that you understand the interest rates and the terms.
Does the loan have a fixed interest rate or variable? If it is variable, it means that the rate can go up or down, so your monthly repayments could increase.
You should also be aware of any interest-free periods being offered. These may be attractive when looking for finance, but the rate after the interest-free period ends may be higher than on loans with no interest-free period so you need to account for this.
What is the APR?
The APR (Annual Percentage Rate) is different to the interest rate as it includes both interest and fees. Lenders are required to show the APR on any consumer agreements. It is calculated as an annual rate even if the loan is for a shorter term. This is so that you can compare loans and credit cards more easily at a glance.
If you are comparing loans of the same amount over the same term, then the APR gives a more realistic comparison than simply comparing interest rates. However, the advertised APR isn’t necessarily what you will be offered on a loan.
If you are looking at a short-term loan or credit card, the APR might seem much higher than on other loans. This is because it is calculated as if you are taking the loan over a year.
What is the loan period?
The loan period is the length of time over which you pay back the loan. Smaller loans might only be taken over a couple of months, whereas larger loans may be taken over several years.
What are the monthly repayments?
It’s vital that you know how much you will have to repay each month and when those repayments start. This will help you budget your money more effectively and ensure you won’t be leaving yourself short.
Are there any additional fees or charges?
Check the terms of the loan for any additional fees such as late payment fees, early settlement fees or admin charges. While you might not plan on repaying the loan early, you could change your mind later, so it’s good to understand these additional charges before you agree to them.
Key points to remember
Make sure you understand all the terms and know how much you will have to repay and when. Don’t borrow more than you can afford to pay back.
About Morses Club
At Morses Club, we understand that feeling out of control when it comes to money can be tough. We offer small cash loans to help with those unexpected costs. Our loans aren’t right for everyone, and you should only borrow what you can afford to pay back. If you would like to find out if a Morses Club cash loan is right for you, then read our FAQs for more information.