Sunday 25 September 2016

How to get a bank personal loan

John Cradden

Published 15/10/2015 | 02:30

Photo: Thinkstock
Photo: Thinkstock

Personal loans may be a little easier to come by today compared to say, two years ago, but there are still a few hoops you'll need to jump through to realise your dream of financing that new car or holiday, home renovation or wedding, or to pay for third-level college fees.

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So what's the first step?

Assuming you have decided you need a loan (as opposed to saving up), the first step is to decide how much you need to borrow. You'll need to figure out how much you can reasonably manage to repay each week or month. There are various personal loan online calculators either on lenders' websites or at consumerhelp.ie that can help you.

Before you do that, it's worth comparing rates for personal loans so as to get a sense of what the average APR (annual percentage rate) is and seek out providers with the lowest such rate for your purposes.

When is variable better than fixed?

The main advantage of a fixed rate is the interest rate remains fixed so your repayments are guaranteed to stay the same throughout the term of the loan. It may make more sense if the loan is for a higher amount, as the security of knowing that repayments won't rise to the point where you might start having difficulty is reassuring.

However, a variable rate is more flexible in that you can pay off your loan early without paying a penalty - including if you can pay it all off in one lump sum.

In addition, if the interest rate falls, your repayments will also fall, which would provide a timely opportunity to pay off more each week to clear the loan early.

My local bank would be handiest, wouldn't it?

Your local bank may offer you a discounted rate if you are a current account customer with them, but be sure to compare this with other banks and lenders.

For instance, KBC offers a 2pc loan discount for its current account customers, and if you are already a customer, you don't need to provide any supporting documentation.

You don't need to have an account with a bank in order to get a loan, of course, but if another lender offers a significantly better rate than your usual bank, the slight inconvenience of going with them will be outweighed by how much you'll save.

And given that most banks will accept loan applications made online or over the phone, it's not that much of an inconvenience these days.

So what do I need to do if I apply to a different lender?

To apply for a loan with a different bank from your own, apart from the standard ID - passport and proof of address (eg. utilities statement - you'll need to provide evidence of your income, which can be one or a combination of current account bank statements (usually six months' worth), payslips and your current P60.

If you are self employed you will also need to provide a minimum of 6 months' business bank statements and possibly Revenue statements for previous years.

Do I need to provide security of some kind?

Almost all personal loan products are unsecured, which means you don't need to provide 'collateral', such as a valuable asset or savings, or have a guarantor. But depending on the circumstances or the purpose of the loan, some lenders may ask for security of some kind.

Permanent TSB offers a product called a 'cash-secured' loan whereby customers can get a very competitive interest rate as long as they have savings that can be used as security.

The appeal of this type of loan is that it allows you to avail of cheaper finance while maintaining your 'rainy-day fund'. The downside is you might not be able to access some or all of this fund while you are repaying off your loan.

There is no restriction on what you can use this loan for though.

But do I normally have to tell banks what I want a loan for?

Generally no, but you'll often find banks offer loans for specific purposes - the main ones being cars, home improvements or holidays - and will structure them accordingly.

What if I have a bad or poor credit rating or am refused a loan?

If you missed a loan repayment, didn't clear a loan or credit card, or settled a loan for less than you owed, it will show up on your credit history (held by the Irish Credit Bureau) for a period of five years after the loan is closed, and which lenders can access to see how much of a risk you might be as a customer.

If you are refused a loan, it will most likely be because they believe you can't afford it, or because you have a poor credit history or scoring. You can ask your lender why, but if you have never had problems repaying your loans in the past, there may be an error on your credit history. You can check your history for a small fee by applying to the Irish Credit Bureau.

What if I get a loan but change my mind?

You have a 14-day 'cooling-off period', during which time you can change your mind, without having to give any reason. The 14 days start when you receive a copy of the agreement. This gives you time to think about the terms and conditions of the agreement, and to get financial or legal advice if you want to. If you decide not to go ahead, you must let the lender know, in writing.

Irish Independent

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