Loan Tips.

Do you really need this loan? Go for a walk. Have a long bath. Have a chat with yourself. Buying a loan is like buying a second-hand car; it's just another consumer item. A bargain may be had by exploring ways of cutting your outgoings; spending less, trying different vendors, or deciding you don't need one at all.

You can easily spend as much again in interest as the initial capital. You could be putting a monkey on your back. Are you getting the loan to satisfy a transient desire, like a smart car, or for something serious, like setting up a business?

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Start Saving. Every pound saved is a pound off your loan amount. A pound not borrowed is a pound you're not paying interest on. If you're not in a hurry to get a loan, trying saving up, and maybe selling off something you don't need. You'll reduce the size of your repayments, and breathe a little easier.

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Avoid Insurance. You don't need this if you're reasonably sure you can pay back the loan without too much trouble. The insurance is for the benefit of the lender, not you. Adding insurance adds a fat wad to the cost of your loan. If you have a good credit rating, you can refuse to take it on. It's a massive extra expense.

It's a bit like when you buy a DVD player in Dixons; the salesboy asks you if you want insurance with that, when he knows a) you're already covered by a warranty, and b) The item is unlikely to break down. It's just a way of scr*wing more money out of you.

People with bad credit may have no option but to take it on, but you can always refuse it initially, and see what happens.

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Shop around. Get quotes from 4 lenders. You may be able to save yourself thousands of pounds by avoiding loans with high rates and/or high fees. A 0.5% lower rate on a £100,000 loan for 5 years will save you over £1,300 in payments. Try your local bank or credit union, mortgage brokers and internet resources. Don't choose lenders just because they have the lowest rate. Consider the overall cost of your loan.

A mortgage or loan varies according to:

The amount borrowed;
The interest rate;
The type of rate (fixed or variable);
The term (length in years) of the loan;
Discount rate for X number of years;
Deposit (downpayment);
Associated fees (broker, origination, prepayment etc.);
Local or national taxes;
Insurance required by the lender.

Improve your credit-rating.

Find out what it is at Equifax, Experian, CallCredit and Trans Union. The last two are UK and US only, respectively. Lenders may access them all. Then do the following:

Make sure you are on the electoral register.

Satisfy liens and public judgements, such as in the County Court (CCJs).

Correct errors, including erasing judgements older than seven years. Paid-off debts can be legitimately recorded up to seven years after settlement.

Add information showing stability:
- Current employment, employer's name and address and your job title.
- Previous employment, if you've had your current job less than two years.
- Current residence, and if you own it.
- Previous residence if you've been at your current place under two years.
- Date of birth.

Avoid unnecesssary enquiries or shopping around for credit or loans. Multiple accesses by lenders of your credit report can indicate that you need many lines of credit. This looks like you are desperate for money, or trying to commit fraud.

Close unneeded accounts. Close them off slowly, not all at once. Keep only two credit cards, one of which should be your oldest; it will have the longest credit history attached to it.

Pay off credit cards. Keep balances low, and paid off on time.

Keep your debt low; below 75% of available credit.

Build a good payment history. Pay your bills on time!

Open a savings account at your bank.

Avoid debt-restructing or loan-consolidation companies. These can get you into more trouble. Negotiate yourself with your creditors, and get any agreements in writing!

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Watch out for the 'Deal Of A Lifetime'. When shopping for your loan, watch out for the deal that seems too good to be true. If you see that a few companies are quoting much lower than average, ask: Why so? If you you can never speak to an individual, or you have to wait 'on hold' for a long time, this speaks badly for the level of service you are likely to get.

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Keep a copy of every cheque you write for your loan.

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If you call your lender about your loan, make sure you get the full name of the person with whom you speak.

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Submit a neat application form; it shows you're business-like and efficient.

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Submit your applications to only one or two lenders at once. When lenders see too many recent enquiries at your credit bureau, negative thoughts come to mind: Are you in financial difficulty and trying to "borrow all over town"? If other banks are rejecting you, why should we approve the loan? Are you getting 'greedy' - borrowing from many sources, for the same need?

Only pay up-front fees to well-known or highly recommended institutions. While most institutions are reputable, it is always best to be cautious.

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Don't sign documents without reading them. As soon as possible, before you close the deal, review the documents you'll be signing, and make sure you understand them, so you won't have to sign them in a hurry.

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Keep your credit line as small as possible. You could be turned down for other loans, even when your credit line has a zero balance, since a large credit-line indicates a large potential payment.

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Understand the difference between an equity loan and a credit line.

Equity loans are closed: You get all the money up front, then make payments on that fixed loan amount until the loan is paid off.

Equity credit lines are open: You can get an initial advance against the line, then reuse the line as often as you want, during the period the line is open.

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Check the lifecap on your equity line. Many credit lines have lifecaps of 18%. Be prepared to make high interest payments if rates move upwards.

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A home equity line of credit may not always be cheaper than a car loan, or a credit card. Compare the effective rate of your credit line (i.e., after the tax deduction) with the rate on a credit card or car loan.

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If your spending is out of control, don't get a home equity credit line to pay off your credit cards. Don't put your home at risk by spending large amounts on your credit cards, after paying them off with your credit line.

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Pay off small debts before the due date. Cancel credit-cards you are not using. Loan officers tend to count the total line of credit - even if you owe nothing - as a liability. They will only cloud the picture. Close credit lines that you have no intention of using in the near future. Also look closely at the interest rates and fees, when deciding which cards to keep.

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Shop for rates when the market is calm.  Rates change from day to day, so compare lenders. The quotes you get should all be from the same time period.   

If you find yourself in a dispute with a lender about a payment or another issue, don't send correspondence to the same address you send your payment.