The best tips for comparing personal loans

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The best tips for comparing personal loans
The best tips for comparing personal loans. Image source: Pixabay

Personal loans can come in handy when you need some financial support.

Even when you’re afraid of debt, there will likely come a time when you need a buffer, and that buffer is a personal loan. A personal loan is ideal when you have unexpected emergencies like medical expenses, home repairs, or the need to consolidate debt.

But a personal loan isn’t just for emergencies; a personal loan can help you save money by covering big expenses. It allows you to take care of big purchases without having to pay the money all at once. Instead, you can have monthly repayments that fit your budget.

While it sounds exciting, getting pre-selected for a personal loan requires a lot of planning. This is why it is important that you do your homework on personal loans, and find out what to look out for before you contact or visit a registered credit provider.

Doing your homework is a crucial step to take when looking for a personal loan. This will ensure that you find a lender who offers you the best deal. Finding the most suitable deal is important because paying off a loan is serious, and can take years. And the last thing you want is for your loan to feel like a burden. So, finding a loan agreement with a lower interest rate can make the repayment term shorter, allowing you the opportunity to save money.

But before you do your homework and apply for your loan, there is one pivotal step to ensuring you secure the most beneficial deal. And that is your credit score. A good credit score gives you the power to negotiate a loan with a lower interest rate. It increases your chances of getting selected for financing, and it makes the application process smoother. However, taking care and improving your score requires effort and careful planning.

To improve your score, you need to:

  • Pay your minimum payment on time and never miss, or have late payments.
  • Rebalance your debt to income ratio by paying off small debt amounts.
  • Keep your balance low on revolving credit, for example, credit and store cards.
  • Apply for credit and loans only when needed.
  • Avoid closing accounts as it may increase your utilisation ratio.
  • Report any fraud or discrepancies on your report.
  • Check your report yearly.

Once all that has been done, you need to make sure you have all the necessary details for the lender. This will make the process seamless. You will need to have your bank statement, latest payslip, proof of address and your identity number. Lastly, you will also need to have a clear idea of what your budget is and how you will be able to pay the monthly instalments. This will ensure that you don’t experience any hassles during the application process.

Once you have made sure that you are an impeccable candidate, you can start comparing deals. Here are a few tips to consider when comparing deals:

Shop around for personal loans

Many lenders offer personal loans in South Africa, but you need to find the right one for your needs. This is why you should visit more than one lender to find out what they can offer you, as well as their interest rates and repayment terms. When shopping around for a loan, it would be best for you to approach at least three different lenders. Having three or more lenders can help you see the overall difference between authorised financial services.

During this stage, you need to start asking for quotes. If you don’t want to go into a branch, you can normally get a quote when applying online for a loan application.

Find lenders who allow you to compare without a hard inquiry

You may be wondering what a hard inquiry is. Well, a hard inquiry is when a lender looks at your credit report before they approve you for a loan. A hard inquiry normally takes place when you are applying for a personal loan, car loan, home loan or credit card.

A hard inquiry has the potential to harm your credit score. Because each time a lender makes an inquiry on your name, your credit score drops and it appears on your credit report. Too many hard inquiries will show lenders that you are desperate for financing.

This is not something you want, as being desperate makes you seem like a high risk to lenders. So to avoid hard inquiries, take a look at the lender’s website and try and get as much information as possible. Or if you at a branch, tell them that you are still comparing deals and ask them if the checks will affect your credit score. Inquiries cannot be removed from your credit score; however, over time, their impact can drop.

Always compare lenders who offer a similar deal

When you’re comparing lenders, make sure you are comparing lenders who are offering you similar loan agreements. Comparing lenders who offer different interest rates or loan agreements won’t help you examine what each lender is offering you. This will also confuse you, and you may end up taking out a personal loan that isn’t offering you exactly what you need. It is important to be patient and take things slow when looking for a loan; avoid rushing into anything and listen to your gut. If you feel as if this isn’t the right loan for you, don’t take it. Because you have to remember that you will be stuck in a 12 months agreement or more.

If you want to get a better comparison, use a personal loan calculator. This will give you a guideline of what your interest rate may be, and how much you need to pay per month.

Look at the fine print

When shopping for a personal loan, you need to look at the fine print. Some lenders may charge you fees that you weren’t aware of when signing the contract. These fees can end up making you pay more in the long run, and that’s the last thing anyone needs. Before you sign the contract you; be sure of what you are signing to avoid any surprises at a later stage.

Final thoughts

Finding the right personal loan won’t happen in a day. It may take you a few days or even weeks, running around to different branches and surfing the internet to find one that offers you exactly what you need. So, make sure you take your time and trust your instincts. And remember that even though you might be under pressure to look for a loan, you need to be absolutely sure before you agree to anything. At the end of the day, you will have to repay the loan, and finding the right deal may make the whole process easier.

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