When looking to choose a new loan, it can be easy to go for the first deal you find or to just choose the last lender you went with. Although there is nothing wrong with doing either, you may be missing out on other smarter lending choices. By smarter, we mean better for you overall, rather than jumping straight into further lending without much thought. The UK in general, as of November 2019, has £225.3 billion of outstanding consumer credit lending to repay, which is an increase from the year before of £342 million. How much of this consumer borrowing spike was a considered choice, it is difficult to know, but could many people have made a better choice? Here are some of the ways to make smarter lending choices.
Compare What You Find
With the huge number of online lenders available to choose from, comparing as many lenders as you can may help you to find a financial product which is better suited to your exact requirements and affordability. This can help you to find the best deal available for you by filtering out the lenders who will cost you much more. This goes for any type of lending from short term loans, mortgages, personal loans and credit cards. According to research from Compare the Market, 82% of UK adults say they have never researched how much they could borrow before applying for credit. By carefully comparing finance options, you will be able to work out who has the best rates of interest for the amount of money you want to borrow and for the length of term you want to repay. Of course, doing this manually will be time-consuming, so you may want to utilise one of the many comparison sites available. They will save you time by comparing your options on the market with just a few details. However, if you are using a comparison site, you should always check the terms directly with the lender before you agree.
Check Your Credit Report
Checking the details contained in your credit report is a quick way to tell if you can get the best lending options. You can check your credit report with any of the main credit reference agencies such as Experian, Equifax, and TransUnion for a fee. Your credit score is free to check, as this will provide your overall financial health with a score, but checking your full credit report if your score is ‘fair’ or lower can provide you with more of an insight into your financial status. Generally, the best lending options will be available the higher your credit score is ranked, so if your score is low, you can use your credit report to find out why. However, many people have never checked their eligibility for credit before applying, with 55% of UK adults not checking and 23% admitting they don’t know what the benefits of doing so are, according to research by Experian.
The reason it is smart to check your credit report is that if you don’t know your score and apply for a lending product, you could be declined when you could have avoided doing so. Being declined for a financial product could have an impact on your credit score in the future, whereas an eligibility checker which most lenders provide will typically not put a mark against your name. With prior knowledge of your credit report, you can make a better decision on what types of credit you are best to apply for.
Be Cautious With High-Cost Lending
High-interest rates can be found with some lenders, however, it is not always simple to tell which products will cost you more in the long run. Forms of lending such as a payday loan or credit card can be costly as a result of the high interest rates. While high cost lending options such as a payday loan are capped to never exceed more than 100% of what a customer borrows, this is not the case for other types such as credit cards, despite calls for the FCA to implement this. On average, the credit card interest rate in February 2020 was approximately 20.77%. Based on this, it would take 26 years and 8 months for the average credit card balance to be repaid if only the minimum repayments were met each month. This is a staggering length of time considering the average credit card debt per household in January 2020 was £2,595. Being wary of the interest rates being charged will help you make a smarter decision with the type of borrowing you want. If you have no better options, high-cost short term lending can still be a suitable alternative, as long as you can afford to repay the amount you want and pay the full amount off as quickly as possible. By keeping in mind all these methods before choosing a lender to apply through, you can help yourself by making smarter choices.
