Choosing the Right Loan

Your first stop on the road to choosing a personal loan should be those banks or credit unions at which you already hold an account, as many will offer lower interest rates to existing customers. You should also look at the products on offer by the many financial institutions around. All of this information is readily available on the Internet.

There are various factors to consider when choosing a loan; the most important being the Annual Percentage Rate (APR). This is a measure of the true interest payable on a loan, and so can be used to compare one loan directly with another. Other important considerations include the number and size of monthly installments, repayment periods (or loan terms), along with the reputation of the lender.

Most loan products are relatively flexible, and enable you to choose a loan amount and term that best suits your needs. The APR may vary depending upon the payment scheme, so if you are comparing loan offers from different lenders or different loan amounts or terms, be sure to compare the APR of each loan scheme.

There are a number of different types of interest you may encounter:

1. Fixed Interest
   A fixed interest rate remains the same throughout the repayment period, which also means that your monthly installments will remain the same.
2. Variable Interest
   A variable interest rate may rise and fall, meaning that your payments will also do the same.
3. Typical Interest
   A typical interest rate is the rate given for a standard set of circumstances, and the actual rate offered to customers will depend on the loan amount, repayment term, and individual circumstances.
4. Set Interest
   A set interest rate is given to all successful applicants regardless of the risks involved, loan amount and repayment tenure.

In addition to measuring the amount of interest charged, the APR includes most other additional costs involved such as broker fees. However, you should also consider those costs that are not included, such as redemption penalties (if you pay your loan off early), all of which will be included in the loan agreement small print.

Another factor is the Equated Monthly Installment (EMI). Personal loans are payable on a monthly basis with some lenders permitting lump sum or over-payments without penalty. In the case of prepayment, you will be given the options of reduction in either EMI or tenure. You should opt for a reduction in tenure, as a longer tenure translates into more interest.

For some people, due to their financial or personal circumstances, finding a lender that will approve them for a loan can prove difficult. A bad credit history, frequent changes of address, or self-employment are all factors that adversely affect the ability to secure credit due to an increased risk to the lender. While there are some lenders that will approve loan applications where others refuse, this often comes at a price with respect to higher interest rates and charges.