by Simon Wright

Created on: April 03, 2007   Last Updated: May 04, 2007

This article title is 'lending tips to get you the best loan'. The first thing to remember is that there are 2 main types of personal loan:

1: Unsecured loan. Typically for amounts from c. 1k to 25k, and used to buy a car, make home improvements, pay for a wedding, etc. Generally payments can't be varied once the loan has been set up - i.e. you'll make fixed payments of 250 for 5 years.

2: Secured loan. The borrower pledges some asset as collateral for the loan. Mortgages are the main type of secured loan. There are many different types of mortgage. They may include the ability for you to overpay, or pay in ad hoc lump sums.

To ensure you get the best deal, the things you need to do include:

1)Determine what type of loan you want. Is it a personal (unsecured) loan or a mortgage that you need?

2)Shop around. Do your research and remember to compare a range of providers to make sure you're getting a good deal.

Tip: For mortgages, don't just compare on the interest rate. Also check whether there are any penalties if you subsequently want to switch to another bank? Check whether it offers the flexibility to overpay (i.e. make a lump sum payment, or pay more than the initial fixed amount).

3) Get a quote. Most banks have tools on their websites that enable you to get a quick quote. Or alternatively, you can phone them or visit a branch. This will tell you how much your monthly repayments will be based on the amount you want and the length of time that you intend to pay the loan off in.

Tip: For unsecured personal loans, check whether the quote includes loan cover insurance? Loan cover insurance is not mandatory for unsecured loans, so whether you take it will depend on whether you want the extra piece of mind.

For mortgages, you will require life assurance, and you will probably also want to get Building & Contents insurance. Make sure that you have included all these additional costs when comparing.

4) Having done your research and found the best deal, speak to your chosen bank and apply. You will be taken through an application form, at the end of which you will be credit scored and hopefully approved for the loan/mortgage.

Tip: If you're declined for the loan, ask the bank if they can tell you why you were declined. If it was because you failed the credit score, you can send off to the credit reference agency for a report that shows your credit status. This costs 2 in the UK. The best way to improve your credit rating is to maintain a current account in good order (i.e. without exceeding your overdraft limit or incurring charges) for a period of time. Banks generally recommend that you wait at least 3 months before reapplying.

Choosing the product that's best for you could save you quite a lot of money.

Finally, if the loan you've taken is a mortgage, remember to review the mortgage at regular intervals to make sure that it's still competitive and that you're getting the best use from it. For example, paying in a lump sum work bonus will help you pay off the mortgage more quickly and may save you thousands in interest payments.

Learn more about this author, Simon Wright.
Click here to send this author comments or questions.