To find the best long-term loan deal for you, you need to think and plan ahead. When comparing loan deals and picking one, many people make the mistake of thinking that the lower the APR, the cheaper the loan will be overall, but that's not true.
First of all, when thinking about a long-term loan, it's important to think about things like how much you want to borrow and whether you want a secured or unsecured loan. Unsecured loans usually have a higher APR than secured loans because the lender is taking on more risk. However, because they are usually paid off faster for smaller amounts, the cost of borrowing is likely to be less than if you were paying the loan back over a longer period.
The advantage of a secured loan is that the interest rate will be lower if you want to borrow more than £25,000 and pay it back over more than 10 years. This is because the loan is backed by your property, so the lender is taking less of a risk. By spreading out the cost of payments over a much longer period, this could work for someone who wants to keep their monthly payments low. However, the total cost of the loan at the end could be much higher, so it's important to do the math and figure out what the total cost of the loan might be.
With a secured loan, you also need to know what, if any, extra fees you might have to pay. Some companies may charge you a fee for managing the loan, and if you pay off the loan early, you may have to pay a penalty (known as an early settlement or early redemption charge). Also, some companies can charge a transfer fee if you move during the term of your loan agreement.
Another thing to think about with both secured and unsecured loans is payment protection insurance. If you got sick and couldn't work or lost your job, this protection could buy you some time because the insurance company would keep making your monthly payments for a set amount of time. But you should make sure you qualify for this protection before you buy it. Some insurance companies won't pay out to self-employed people or people who get benefits, so you could end up paying for something you don't need or that doesn't apply to you. Payment protection insurance can also add a lot to the total cost of a loan, so if you decide to get it, look around for the best deal. Many lending companies will try to "bundle" it in with the loan they offer you, but you don't have to take it or even take the loan at all. But if you get a secured loan, you should always remember that if you can't pay back the loan, your home could be at risk.
When planning for a long term loan, you also need to consider things such as whether or not you opt for a fixed or variable interest rate as that can affect your total repayments. In fact, there are so many different factors that the best thing to do is to talk to an independent financial advisor or a trustworthy broker. They can talk with you about the best deal for you. In the end, though, you should think about more than just the APR. You should also think about how much your monthly payments will be and how much the whole loan will cost you. If you are happy with both, it's probably a good deal for you.
