When you are picking a lender it can often be tempting to go
with a name that you know. This is why the main high street banks will often be
able to charge a higher interest rate than some of the less well-known lenders.
People like to go with who they know and may even just stay loyal to one bank
of building society that they already use. It can be scary choosing a lender
that you have not heard of or that you know very little about but it could mean
that you will miss out on a better rate. There are checks that you can do
though to find out more about unknown lenders first.
- Ask people you know – asking people that you know to give you information can be really useful. They will have had experiences that you have not and so you have an opportunity to learn form them. If they have had an experience of using a particular lender that you are considering, then you can find out more about their experience and whether they would recommend them to you or not. This is really valuable information as they will have no reason to be biased and if they are someone that cares about you, they will try to give you the best advice to help you. Even if you can only find out about who to avoid, this can be useful as you will know what to look out for in a bad lender.
- Look at online reviews – if you have no one to ask or do not feel comfortable talking about this sort of thing then you will have to find a different source of information. If you dig about online you might fid some information or reviews of the lender. These can be varied and there is no way of knowing if they are impartial or correct unless you can find them on a site that you really trust. It is worth remembering that reviewers might gain from commission on leads if they recommend certain lenders so they may be more inclined to recommend those. Try to find sites that seem impartial and do not have leads and links to lenders sites or ones where you trust the reviewer.
- Check out their website – you can get a lot of information about a lender from looking at their website. You should be able to get a feel for the company and you might be able to find out about how they were set up and things like this. You may also gain by looking them up on websites like Wikipedia which will have information about how they were formed and when as well as information about anything notable that they have done or been involved in.
- Contact them directly – if you have any questions or concerns then contacting the lender directly can be useful. Not only will you be able to get your question answered but you will also be able to find out what their customer service is like. You will get a feel for how polite and friendly they are, how quick they are to answer and how well they answer your query. It can be very enlightening.
As you can see there are a lot more things that you should
be concerned with when picking a lender. It is therefore no surprise that many
people will just pay more to stick with one that they trust. However, if you do
some research, which may not even take that long, you will be able to find out
whether you might want to use any of the cheaper lenders that are available. Of
course, as well as finding out about them you need to look at their costs more
closely. Just comparing on interest rate, unless you use the AER means that you
may not be comparing like for like. Some lenders will add on other fees as
well, such as administration fees and so the loan could be more expensive than
it seems. You will also need to take into account how many repayments there
are, as the longer the length of the loan, the more expensive it is likely to
be. So, it is wise to calculate the actual cost of the loan so that you can
compare the price properly. You might also want to see how high any fees they
might charge for things like late repayment are. Although you may not expect to
make a late repayment it is still useful knowing how much they charge for this
just in case. If one is very much higher than another then you might decide
that you do not want to use them, particularly if their main costs are not that
much different to other lenders. Also knowing how expensive it could be if you
do miss a repayment could help you to be more motivated to make your repayments
When picking between loans it can be easy to think that the
one with the lowest interest rate will be the best option. This is probably
because lenders will use their interest rates as a way of marketing their
loans, claiming that good rates are the best. You will also find that comparison
websites will compare based on interest rates and so it can make people think
that is the only important thing to worry about. However, it is important to
understand how loan costs work and also other factors that should be an
influence in your decision.
You may find that when you look at loans there are two interest rates that
are given and they are quite different. This can be confusing. It is worth
noting that it is the AER which gives you a true comparative value as it
includes any additional costs to the actual interest that you are charged.
Comparing loans like for like can be tricky because of this and it can be best
to try to work it out for yourself rather than relying on comparing interest
rates alone. What you need to know is how much you will repay in total and you
should be able to work this out if you know what your repayments will be and
how many repayments there will be. If you do not have regular repayments then
you will have a trickier calculation to do. This is because loans such as
credit cards or overdrafts will have their cost determined by how long it takes
you to repay. You will need to try to work this out so that you can calculate
the costs. If you have trouble with calculating any of the costs then you
should be able to contact the customer service department of the lender and ask
them to calculate it for you.
It may seem like a lot of work but this is important for two
reasons. Firstly, you will be able to compare costs of the loans allowing for
all of the factors such as one-off fees and things like this but also it will
help you to see how much you will be expected to repay each month. It is really
important to be aware of how much you will need to repay and then you will be
able to know whether you will be able to afford this. It is so important to be
aware of this as if repayments are too high then this can have a huge impact on
you. It may mean that you have a constant struggle to find the money to pay
them or even that you have to give up paying for other essentials to pay them.
There are other things that you also need to think about when comparing
loans. You should have found out how many repayments you will be expected to
make. Think about whether you will be happy repaying your loan over that period
of time. You may find it quite a burden to have a loan lasting for a long time,
but alternatively you may feel that you will be happy repaying over a long
period if it means that you will find the payments easier to make.
Other factors that borrowers may consider involve the
specific lender. They may feel that it is important for them to use a lender
that they can trust. This may mean they want one that they have heard of or
that they know other people have used successfully. It may be more to do with
online reviews being good or customer service being outstanding. It is worth
thinking about whether any of these things are important to you. Whether you
feel that they would make a big difference to you if you are picking between
them. It may not feel that it will make a great deal of difference but it
really could. Think about the difference between a lender that is happy and
willing to answer questions and queries quickly and correctly compared to one
that takes a long time to give an inadequate answer. Also consider the value in
using one that has good reviews and comes recommended form people you know
compared with one you know nothing about. You will be able to feel more
confident that you will have a positive experience if you use one that you feel
you can trust.
So, the lowest interest rate does not necessarily indicate
that the loan will be the best. Not only does it not even necessarily mean that
the loan will be the cheapest but you need to consider whether you can afford
the repayments and what the lender is like as well. It is worth considering
these things because they can make a difference to your experience as a