For most people, a personal loan will be one of the cheapest ways to borrow money. That’s not all there is to it though: lenders weigh up lots of different factors when deciding how much to charge for credit, and there are a few different things that you can do to make sure you’re getting the best rate on your personal loan.
Make sure you have the basics covered
When a lender is deciding whether to lend you money – and what interest rate to charge you – it will carry out some basic checks. For example, most lenders will try to make sure that you live where you say you do, by carrying out a check via the electoral register.
The electoral register is a list of everyone who has the right to vote in a public election in the UK, and is updated on the 1st of December each year. Not appearing on it, or appearing on it with an address that doesn’t match the one you provided when applying for a loan, can act as a red flag for the lender.
Ensuring that your details are up to date is a quick, easy fix that can improve your chances of getting access to an affordable loan.
Get a quote from a lender that uses Open Banking
Modern lenders like Koyo don’t just rely on old-fashioned credit searches when evaluating a borrower.
Open Banking is a secure way for trusted third parties – in this case, potential lenders – to view your financial information.
Koyo was the first lender to make use of Open Banking technology to get a more detailed picture of borrowers. What that means in practice is that we aren’t just relying on old indicators such as the time you’ve lived at your current address when deciding whether to give you a loan. Instead, we can look at your finances and get a much more informed view.
For example, if you’ve recently moved to the UK for work, you might have a stable income and low outgoings, but have spent only a few months at your current address.
For many lenders, this would mean an instant decline, but Open Banking allows us to get a fuller, fairer picture of that borrower, and offer credit where others might not be able to – potentially at a lower loan rate.
Customise your loan
Loans are often marketed based on specific time periods, generally a certain number of years. You might see adverts for a 12 or 24 month loan for example, but you’ll never see an advert for a 15 month loan.
However, everyone’s circumstances are different, and that’s why lenders like Koyo allow you to choose exactly how long you want to borrow for, right down to the nearest month (take a look at our Real Rates Loan Calculator). Borrowing for a shorter period of time might not have a significant impact on your rate of interest, but it can make a big difference to the amount that you pay back.
Here’s a representative example: if you want to borrow £3,000 for 24 months, you’d pay 28% representative APR, and £840.64 in interest over the term of the loan.
Reducing that term by just two months, you’d pay the same loan rate but for a shorter period, meaning that your total interest payable would be £768.53 – a saving of more than £70.
So, if you can afford to make repayments more quickly, you can customise your loan agreement to save money by paying it off over a slightly shorter time period.