Bank Loan Versus Bank Overdraft
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If you need to have a loan, for whatever you choose - whether it is for debt consolidation or to pay for your next car, or maybe even to cover the cost of your child's university fees - there are some points that you need to consider before you sign on the dotted line.
The most important issue is your ability to pay for it. Though on paper a monthly instalment may look affordable, you must take a look at all of your financial commitments realistically. Write down a monthly budget - consider everything from your mortgage to savings to home and car insurance, other borrowing or obligations you have, in addition - entertainment and food expenses - and try to be as realistic as possible! For example, if you generally spend £200 monthly on your food and leisure activities, do not plan for £100, anticipating that it's possible for you to do it with less money - it's very unlikely!
If you have money left over when it's completed, then this ought to be the maximum is available for you to pay out for your monthly loan repayment.
Once you've confirmed that you can afford the cost of the loan, you have to take a close look at the small print.
As an example, the majority of lenders have a clause in the agreement between you and them that allows them to charge you a financial penalty if you pay off the whole amount of the loan prematurely. This is considered an ?early redemption?. The penalty amount will vary from loan company to loan company, though you can typically expect to pay two months' worth of interest charges in addition to the settlement amount.
Also, check out what will happen in the event you make a late monthly payment - a large number of lenders will charge a fee, so it is vital that you are aware of the precise amount that they will charge you.
Shopping around puts you in a good position to track down the most favourable loan offer for you. There are hundreds of varying loan deals available - some even have repayment holidays allowing you to postpone a monthly instalment - so don't jump at the first package available.
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