Before you apply for a new loan, make sure you work out how much you can afford to repay each month.
Our loan calculator helps you see how much you can afford to borrow, or if you would prefer, give us a call to get a free no obligation quote. But first, use our check list to find the right loan deal for you.
How much should I borrow?
The obvious answer is to borrow the minimum you require over the shortest term possible, in order to keep the cost of borrowing down. But it’s not quite that simple. Many lenders operate tiered interest rates, with rates getting cheaper the more you borrow. This means that if the amount you need is just inside one tier, you may be able to reduce your monthly payments by borrowing a little extra to get into the next tier and qualify for a lower rate. Just make sure you don’t borrow more than you can afford.
How long should I borrow for?
You should always aim to pay off your loan as quickly as possible, or as quickly as you can afford based on the monthly payments, as interest charges can soon add up. For example, if you borrowed £10,000 over three years at 10% interest it would cost you £322 a month or £1,600 in interest charges over that period. Borrowing the same amount over 10 years would only cost you £132 a month, but the total interest charged would increase to a whopping £5,850 – that’s £4,250 extra for spreading the cost.
Should I consolidate my debts?
If you have a good credit rating, you could be able to transfer existing credit and store card debts onto a 0% balance transfer credit card. Just be aware that you will be unlikely to get a credit limit of more than £5,000 and that the longest you can enjoy 0% interest is three years. On the other hand, if you’ve had any credit issues the 0% interest period could be as short as three months, after which the interest rate could climb as high 35% making it a very expensive solution. You will probably be more successful applying for a secured homeowner loan that offers fixed repayments for a longer period. Paying off your existing debts will also help rebuild your credit rating, making it easier to apply in future.
Watch out for early repayment charges
If you want to consolidate a loan taken out after 1st February 2011, you can make partial overpayments free of charge so long as your total repayments for the year don’t exceed £8,000. Go over this amount and your lender can charge you for overpaying, provided they have incurred a cost themselves. If you repay a loan in full you could be charged an early repayment penalty of between one to two months’ interest. You should be able to find the amount on your loan agreement.