LOANS

QUICK GUIDE: HOW TO CHOOSE A LOAN WITH THE BEST TERMS?

13 JUNE 2018

Do you want to go on vacation or buy a new car and you consider taking out a loan to make your dreams come true? There are a couple of things you should know, which will help you to choose the best loan offer. Let's find out what to consider before taking out a loan.

What Is a Personal Loan?

A personal loan, also called a consumer loan, is money granted by a financial institution for a personal, family or household purpose. What does it mean? Money from a loan can be destined to pay for our vacation, medical treatment, education, computer or car purchase.

Personal loans are often unsecured and granted on the basis of our credit history. They can also be secured by the purchased asset or by a guarantor. Repayment proceeds in the form of installments, which a borrower pays monthly.

What Are The Requirements?

Basic requirements which you have to meet if you want to take out a personal loan are:

  • at least 18 years old,
  • having a regular income,
  • at least acceptable credit history and credit score.

An Interest Rate

An interest rate is a fee that we are charged while borrowing a money. It is always expressed as a percentage of a total amount of a loan. It is the cost of money you borrow – you have to pay it to a bank. Thanks to the interest rate the bank secures itself in case of any problems with repayment. People with lower credit score will be offered with a higher interest rate.

Other Fees

Besides the interest rate, there are also other fees which we are charged with while taking out a loan:

  • establishment fee – it is charged for taking out a loan,
  • insurance – you have to add that cost if you take an additional insurance to your loan (sometimes it is obligatory),
  • early exit – it is charged when you want to break the agreement,
  • early repayment – it is charged when you want to repay your loan earlier.

APR or TAR?

APR is an annual percentage rate. It presents a total cost of a loan over a year, but it doesn't always represent the truth. The real cost of a particular loan you will find looking on a TAR (total amount repayable). It presents a total cost of a loan, including all the additional charges besides an interest rate.

What Are The Pros Of a Personal Loan?

  • The interest rate will be usually fixed, so you'll have a chance to plan your budget earlier and decide if it's possible to repay everything on time. It is the advantage of the personal loan over a credit card.
  • You pay the same rate each month – it is easier to plan your outcomes thanks to that.
  • You can choose how long would you like to repay your debts and manipulate over a monthly repayment cost. It allows adjusting monthly costs to your monthly budget.
  • If you want, you can repay your loan in full in one rate or pay it earlier (but be aware of possible charges).

What Are The Cons Of a Personal Loan?

  • Usually, personal loans are charged with high interest rates.
  • If your credit score is not very good, the interest rate will be higher.
  • Sometimes taking more money than we need may lead to a debt trap.


If you need some money for the vacation or other purposes, taking out a personal loan may be a good idea, but you have to be careful and check out every charge connected with it.


Author: Olga Gierszal

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