How to Secure the Best Rate on a Personal Loan
Using personal loans and other forms of credit responsibly has not traditionally been a strength of South African consumers. In fact, recent research has found that of the 25 million credit-active people in South Africa, 40% are not using credit responsibly.
What does using credit responsibly mean? It means a number things, including: only accessing credit you can afford to repay; only borrowing money you really need; and always shopping around to find the very best possible rate on credit products.
But shopping around is not the only thing you can do to secure the best rate on a personal loan. We’ve compiled a quick guide to three simple steps you can take to reduce the cost of credit.
Decide what you want from a loan
Don’t let the huge number of personal loan adverts you’re likely to see influence what you want from a loan. The first step is always to think about how much money you want to borrow and how long you’ll realistically need to pay it back. Don’t let yourself be swayed. Once you know what you want, you can then compare the lenders on a like-for-like basis.
If you’re not sure how much you want to borrow, some online lenders, like Wonga have simple slider tools that allow you to play around with different loan amounts and repayment periods so you can see how much the monthly repayments are likely to be.
Don’t apply for more than one loan at a time
Shopping around is essential to find the best loan rate, but you should only apply for a loan once you’re sure it’s the right product for you. Applying for multiple loans at once, even if you just want to find out the APR you’ll be offered, can leave a permanent mark on your credit record. Every time you apply for a loan, the lender will carry out a check on your credit report. These so-called ‘hard’ searches can damage your credit score and ultimately increase the amount you’ll have to pay for credit in the future.
The way around this is to use a quotation search (or ‘soft’ search). A soft search will tell you what personal loan products you’re likely to be accepted for without the lenders carrying out a check on your credit report. You can perform this type of search as many times as you want.
Borrowing more could cost you less
As well as looking at personal factors such as your credit score, lenders typically charge different rates of APR based on the amount you want to borrow. Typically, the more money you borrow, the less the APR will be. You should never borrow more money than you need. However, sometimes, borrowing just a small amount more might push you into a cheaper APR bracket. For example, if you can borrow R7,400 at 10% APR and R7,500 at 8.5% APR on a one-year loan, the overall cost of the R7,500 loan will be less.
If you’re not told the total cost of the loan by the lender, make sure you perform your own calculations. Here’s a free loan calculator to help you work it out.
What are your tips for securing the best rate on a personal loan? Please share your thoughts with our readers in the comments below.