cheap loan tips

Let me be blunt. The impact of the credit crunch, and ensuing recession has been a tightening of lending criteria. This means it’s getting more difficult to find someone who’ll lend you cash, and even if one does, the rate will be higher.

First, treble check you’re borrowing the absolute minimum needed, as lower amounts make it easier. Plus ensure you’ve checked your credit files to ensure it isn’t a simple error that’s hitting your credit worthiness (read the Credit Rating guide).

After that, there are three main options:

• Step 1. Use a Credit Estimating Loan Comparison service.

  Price comparison site MoneySupermarket has developed a facility with credit reference agency Equifax. This enables you to answer a few questions that will estimate your credit score, and show you which loans you’re most likely to be accepted for.

  To do it use its Smart Search* facility. It’s worth understanding as MoneySupermarket doesn’t automatically include every lender; yet if you’ve a poor credit score, sacrificing the comparison of some more competitive lenders to see what you’re most likely to be accepted for should help.

  A big warning though; the Smart Search includes some secured loan products in the comparison, so always check the ones it suggests. For all of the reasons above these are costly and can be dangerous, and only useful as a very last resort (read Secured Loans).

• Step 2. Check out your own bank.

  If it looks like you’re not going to get a particularly good rate via doing the loan comparison service, check the standard loan rate from your own bank to see how it compares.

  This is because it knows more about you, and credit scoring is about predicting your behaviour, so that extra data may help. If its advertised rate is cheaper, it's worth calling in for a chat with it, as there’s a chance your bank will give you a loan in circumstances others wouldn’t.

• Step 3. Consider a Credit Union Loan.

  Credit unions are independently-run local co-operative organisations that aim to assist people who may not have access to financial products and services elsewhere. There are 500 in the UK providing loans, savings and current accounts, each deciding its own services and rules on who can join.

  All Credit Union loans have no hidden charges, no penalties for repaying early and include life insurance for the loan as standard. Traditionally a union only lent to people that also held savings with it, but the larger ones can now lend you money regardless of this (though many smaller ones still require you to have savings).

  To find interest rates, length and amount of loans available and whether it’ll lend to you, contact your local union. As a guide most offer a rate around 13% APR, but never more than 27%, lend up to £10k, and you can usually borrow a personal loan for up to five years, possibly 10, and a secured loan for up to 10 years, possibly 25.

  For full details on how Credit Unions work, how to find out if there is one near you and the other financial products that may be on offer read my guide to Credit Unions. Also feedback in the forum what you think of Credit Unions so that other MoneySavers can learn form your experiences.

If no one will lend you the money cheaply, consider not borrowing it, that’s usually the best option. If the idea of the loan was to cut the cost of existing debts then please read the Problem Debt Help Guide.