When picking any loan we will often compare the costs by looking at the interest rate. We may then conclude that the one with the lowest rate will be the best. If you are picking a guarantor loan, you may very well feel this way and search for the one with the lowest rate. This could work out well, but it is worth looking at other factors as well before you decide on which one you want to go for as the rate is not the only factor that you need to be thinking about. There are other things which could also be important.
Look at fees and charges
It is worth noting that when you look at the interest rate this is not always the only thing that you will pay and so you may be comparing lenders like for like. The AER will include any additional fees or charges as well as the interest charged by a simple interest rate will not. This means that sometimes the figures that you see are confusing. It can be best to contact the lender and ask them exactly how much you will repay in total including all interest, fees and charges. Then you will have a monetary figure that you can use to compare lenders. This can be very much easier and you can compare each lender then and know exactly how much you will have to repay.
It is also worth taking a look at any additional fees they might charge. This is most common if you miss a repayment. They are likely to charge you fees for this and it is worth finding out how much these will be so that you can compare the lenders and see whether there are any that seem very much more expensive than others.
Consider the term
It is important to think about the term of the loan. This is how long the loan will go on for. If it goes on for a long time, you will have more repayments to make but they will be for lower amounts. However, this will make the loan more expensive because you will be paying interest on what you owe for longer. If you repay over a shorter period, you will not need to pay so much interest but your repayments will be larger. You may prefer to repay over a shorter period so that you can get out of debt as soon as possible, or you may not mind and prefer to have smaller repayments.
Can you manage the repayments?
It is really important to make sure that you can afford the repayments. Always make sure that you know what you will be repaying and then calculate whether you can afford it. You can do this by looking at previous bank and building society statements and seeing how much money you would normally have available to pay for something like this. Then you will be able to know whether you will be able to afford it. If you feel you will not even be able to afford the cheapest loan, then you may be able to look to see whether there are areas where you can reduce your spending. You may spend on things that you can do without or you may be able to buy cheaper alternatives in order to free up some money.
What is the lender like?
It is important to know a bit about the lender. You may need to get in touch with them for some reason and you want to make sure that they are helpful and polite. You may also be keen to know if you can trust them. If you do not know much about them then you will find information on their website. You might also want to look at personal finance websites where there may be more information about them that you can read. Beware of bias in information you read online though and if you can, then asking friends and family might give you a less biased idea of what the lender is like.
So, although the interest rate is a factor when picking a guarantor loan, it is important that you also look into other things. You need to think about the full cost of the loan as well as how long it will take you to repay it. It is really important to make sure that you are able to manage the repayments and that you trust the lender. There is the information available for you to find out these things and it is well worth spending the time doing the research. It could not only help you to get good value for money from your loan and not pay more than necessary but also to find a lender who is friendly and helpful.