Many loans offer a good way of organising or consolidating existing debt so you ay off a fixed amount per month. However, you must choose carefully to ensure you pick the right loan for your circumstances. Consolidation loan may seem like a good idea however they can sometimes extend your repayment date and actually cost you more than dealing with your debts on their owns. Advertised rates will not always be the rate you are offered – your personal circumstances dictate the rate.

If you need to borrow money but do not want to secure the loan against other belongings such as your house (or in fact, if you do not have belongings that you could secure the loan against), you will need to get an unsecured personal loan. If possible, do not take out a secured loan. You can normally borrow between £500 and £25,000 and it will normally take between 6 months and 15 years to pay back. Most of these loans are fixed – the repayments are of a set amount over a given time period. A less common loan is a variable loan where the interest you pay back is dependent on the bank base rate and therefore the interest will change over time.

Interest rates will vary substantially, dependent on the lender and your credit history. The most common loans have a range of about 6% to 20% which is why it is important to shop around so that you get the cheapest deals. Ensure you get a lot of quotations on like-for-like loans to make sure you get the best scheme for you. There is nothing more frustrating than realising you can pay the loan back earlier than you thought and having to pay early repayment fees. When you ring up for quotes, try playing lenders off against each other to try and get the lowest interest rates possible. Some lenders will also charge an additional fee for sending same-day transfers. If you can wait for a few days, request that they send it by BACS or cheque and they may be able waive this fee.

Interest Rates
The interest to look out for is the APR – the Annual Percentage Rate. This is the overall rate of interest plus any other charges. Remember that you may not get the rate advertised. ‘Typical APR’ means that two thirds of people who make a successful application will get that rate. This means there will be a large number of people who are either refused for that loan, or who will be offered a higher rate. The APR will depend on your circumstances – things such as your past credit history and your annual income. Always check the small print to make sure you are aware of all charges included in the APR. Before you sign on the dotted line, make sure you know what the monthly repayment charges are, when they will start, and how much you will actually pay back to the company is.

Price Protection
Lenders may offer you something called ‘Payment Protection Insurance’ (PPI). This is insurance if you find yourself unable to work due to unemployment, accident, sickness or death.  Although this can be a good idea, make sure that you are eligible to claim before you take this out and make sure you know what period the insurance covers. You will also need to weigh up whether the outlay of the money is worth it.

Flexibility
If your income varies from month to month, you may want to look out for a flexible loan. These loans give a little leeway on how much you pay each month – you can make overpayments when you have the cash and underpayments if you are a little short some months. You may also be allowed to defer payments or take payment holidays. However, these loans are considered higher risk and you will generally pay a higher rate of interest.

The Consumer Credit Act
The Consumer Credit Act of 1974 gives everyone who has borrowed up to £25,000 protection. It ensures that you are given written information about the agreement (the APR, copy of the credit agreement and total you will end up paying the lender) and you will also have a cooling off period – normally of 14 days – where you can cancel the loan.

Switching Existing Loans
When trying to pay a loan off early, you may have to pay penalty charges – normally one or two months worth of interest. The earlier you repay, the bigger the charge will be. It is normally only worth switching if you can get a rate of interest which is 2% or more better than your current rate. Firstly, ask your lender to confirm your repayments and ask how many remain. Multiply these two figures together to get the amount of money you still owe the lender. Now, ask how much it would cost (including penalties) if you were to repay the loan in full immediately. Use this figure as a base for looking at other loans to see if you can find one which will be cheaper in the long run.

I’ve got some extra money. Should I pay my loan off?
It is always a good idea to pay off your debts as soon as you can, however early payment penalty fess complicate the situation. You might be better off putting the money into a high savings account and continuing with the loan repayments as normal. You need to work out the cost of paying the loan off now versus how much interest you will receive if you kept the money and work out which is the most cost effective solution for you.

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