Applying for a loan may sound like a simple process and the finance companies have gone out of their way to make it this way but unless you carry out some checks first how do you know you are applying for the right one? There are some simple but basic rules to follow and provided this is carried out you will not apply for the wrong loan.

Although it may sound daunting at first, the most important part is to find as many companies as you can that are offering loans to ensure you will arrange the best deal. Almost all lenders now have their own websites but sites that are set up to show comparisons are becoming increasingly popular and save a great deal of time but it won’t hurt if you also check lending details from your own bank as well.

Just remember that detailed quotes from a lender requires they carry out a credit check on you and each time this is done it will have an adverse effect on your credit score so don’t apply for the loan until you are ready, just ask for general information. Be careful when looking at the Annual Percentage Rates (APR) because although it is beneficial to have a low rate, there are other factors to consider including repayment terms and additional or hidden charges that are not immediately apparent.

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Loan protection insurance is a good idea and can save any problems should a situation where you cannot repay the loan through sickness or injury, happen but this can add quite a bit to the loan so check with you loan provider and other insurance companies to get a more competitive quote. Before you decide on a particular loan insurance protection plan, check how much is covered by your employment contract first.

If the loan is only a small amount, avoid the temptation of a secured loan because the interest rate is lower as your credit score may not require it anyway. Whilst the interest rates for unsecured loans are normally higher as the risk to the lender is greater, you will not need to use your home or other valuable item as collateral.

Watch out for the small print as it is easy to overlook but this is where all the potentially dangerous clauses are hidden. Look at what happens if you miss payment or the payment is late, and if there are any additional penalties or charges, such as charges for early repayment. Although it may seem attractive to have the lowest monthly figure to repay over a longer period, the overall amount you repay is considerably greater the longer the term is so try to arrange the loan over the shortest repayment period that is comfortable. This obviously isn’t as important if the loan is for improvement you might intend to carry out on your property but a loan for a car for instance or a wedding will not warrant the additional repayments especially as it just means you are paying far more in interest. Before you applying for a loan, make sure you can afford it, this may sound simple but many people overestimate their ability to pay regular amounts and end up struggling as it becomes a burden.

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