- Check your credit file
A little research goes a long way so always try and invest a little time beforehand and check your credit file. A low or poor credit score can impact upon your ability to gain access to credit whether it be for an unsecured loan or credit card.
Also bear in mind that too many applications can also impact upon your credit score and reduce your chances of a successful application. Try and use ‘soft search’ tools on websites as these are a more accurate indication as to whether or not you are likely to be accepted. Most lenders and comparison sites have these and they are free and easy to use.
- Try and keep up to date with market trends
Like most products there will be periods of special offers and promotional rates so its worth checking out what is happening in the market. It might be worth signing up to a website that emails you directly when there are new deals available such as moneysupermarket.com.
Balance transfer offers, interest free purchase cards and money transfer offers are all available via your credit card at some point, so if you are wanting to take advantage of such a deal always make sure it is when the rate is its most competitive or over a long time period.
For those wanting to borrow a larger amount, an unsecured loan may be a better option. As with all borrowing, always make sure you can afford your monthly repayments.
- Improve your knowledge on interest rates and terms and conditions
It may be boring, but you should always read, and understand the terms and conditions of the borrowing as this can ultimately influence your final decision.
So for instance are there any ‘late payment’ fees, or early repayment fees? Are there further consequences should you miss a payment? With most credit cards should you miss a payment then the lender is perfectly entitled to revert your back onto the standard variable rate, which pushes the interest amount up, and charge ‘administration fees’ for this.
Familiarise yourself with interest rates too as these play a huge role in determining exactly how much you will have to repay. There are calculators on the lenders website to help you work out what you would need to pay back each month..
- Plan a monthly budget
It goes without saying that it is vital that you go through your finances so you can review all your income and expenditure, and so determine what you can afford each month.
Make sure that you include everything in the monthly budget and include those things that don’t necessarily happen monthly but need consideration, such as car MOTs and servicing and even birthdays. So your food, rent, mortgage, bills, travel, insurance, holidays, leisure, clothes, cosmetic purchases, household purchases should all be included. And of course ensure that any current loan or credit card repayments are included. It may be an idea to go through your last 6 months worth of bank statements to jog your memory.
- Plan how your will spend the money-then add 10% for unforeseen circumstances
When planning and budgeting for any purchase try and be realistic about the costs. It is natural to want to keep costs to a minimum, but an unrealistic budget can lead to all sorts of issues. If you are borrowing for a large renovation such as a new kitchen, then it may be difficult to factor in all the associated costs as things may crop up that were unforeseen, so always add 10% on and that should give you a clearer picture of how much you need to borrow.
- Always plan your borrowing time period
Once you’ve decided how much you need to borrow and the best way to borrow it be it via an unsecured loan or credit card, then the next major consideration is over what period of time do you wish to pay it back. Obviously this can link directly to the amount, as if it’s a relatively small amount say £2,000 for a holiday then you’d probably want this repaid in twelve months, whereas a £10,000 car loan may be over a longer period of time say 5-7years.
A 0% credit card is a good way of borrowing providing you can pay off the balance before the end of the 0% period.
Alternatively, if you’re not looking to pay off the borrowed amount quite as quickly, unsecured loans allow a much longer borrowing period. So a fixed interest loan allows you to decide beforehand how many years you have to settle the balance.
- Any ‘teasers’ or special offers to be considered?
These days a lot of the credit card providers will reward you with some kind of loyalty or reward scheme, which may be useful to you, such as Airmiles or even cashback on purchases.
Loan providers may also offer certain benefits and loyalty rewards too. For example your bank may reward your loyalty as a customer by offering you a lower rate of interest or even tailoring the loan to your specific needs. All things to consider when deciding the best borrowing option to best suit your needs.
- Consider if your circumstances changed
It’s a nice position to be in, when you have a financial ‘buffer’ or cash sat in the bank were your circumstances to change. It may be worth considering a ‘worst case scenario’ should your personal and or financial circumstances change. Having the ability to continue to make repayments throughout an uncertain period will continue to stand you in good stead credit rating wise, and it is never a bad thing to have some savings just in case.