The end of 2020 has left many in difficult financial situations. Some people have had their income reduced while others have lost their jobs entirely. This has pushed many individuals to postpone numerous major expenses, waiting for the situation to improve. The New Year brings new, better financial prospects, and many banks have already started to advertise the new requirements for their products and services.
It is now as easy as ever to get a personal loan. However, if the requirements are low, it does not necessarily mean that getting a loan is a good idea. The New Year is expected to bring about financial instability throughout the world, making it important to plan the repayment of the loan even before applying for one. This having been said, the most important thing that an individual can do when looking to take out a personal loan is to ensure that he will get the best terms and conditions. Here is what you should do to ensure that this happens:
Pay Off Your Credit Card Loan
The most important thing to do is to pay off your credit card loan. This is the fastest way to give your credit rating a boost and increase your chances of getting a low interest rate. While you do not need to repay the debt entirely, it is important to reduce your credit utilisation ratio to under 25%.
An individual’s credit utilisation ratio is calculated by looking at how much money has been borrowed from his credit card account. In other words, if you have a credit card with a £1,000 limit on it and have used it to make payments that totalled £500, then your credit utilisation ratio will be 50%. In this case, all that you need to do is repay £250.
Please keep in mind that this applies to all the credit cards that you own and the ratio is calculated for each of them. Make sure to consider this before applying for a personal loan.
As a secondary tip, try to reduce the number of your credit cards. While it is safe to have one or two credit cards, having more may also cause lenders to be wary, regardless if you use them or not.
Open a Savings Account
The best way to ensure that you get a low interest rate for a loan is to prepare your credit file before submitting your loan application. Having a savings account will signal the lender that you can manage your personal finances and that you have the discipline required to make monthly payments. This will reduce your risk rating and lead to a lower interest rate.
However, for this to happen, you will have to open the savings account at least one or two months before applying for the loan and contribute to it regularly, preferably with the same amount of money.
Consolidate Your Existing Debt
If you have any debt that you are currently repaying, consider first taking out a debt consolidation loan. While it may seem counter-intuitive, a debt consolidation loan will make it easier to borrow money in the future. This is because the number of loans that you currently have is just as important as the amount of money that you owe. When you consolidate your debt, you reduce that number to 1.
However, keep in mind that debt consolidation loans are often secured forms of debt, which means that you will have to offer collateral, usually in the form of your home or another high-valued property.
