Careful Borrowing: Things to look out for when taking out personal loans

Are you strapped for cash? Well, a personal loan can help you close that impossible budget gap and get your finances back on track. That said, taking out a loan can be a dangerous endeavor. While unsecured loans are among the most straightforward ways to get money for an unexpected expense, they also present many avenues that lenders can exploit to make more money from you.

It is therefore crucial that you evaluate your options carefully before signing on the dotted line. Below are a few things to look out for when getting a personal loan.

  • The amount you’re borrowing

The temptation with loans, particularly if an agency is actively selling them to you, is opting for an even larger sum than you initially needed, just because you qualify. Even more damaging is that the lender will often try to convince you to drag out the loan for a longer period of time to reduce your monthly payments.

Although both of these scenarios may seem reasonable, keep in mind that the financier is only trying to earn more from you. Therefore, borrow just what you need, and pay back as soon as possible to keep the debt’s interest to a minimum.

  • The contract

Before agreeing to anything, check the fine print for those small details that the lender may not be willing to disclose. For instance, many unsecured financiers include early repayment charges to the deal to compensate for lost interest when a borrower decides to pay off a debt early. If you reckon you’ll want to settle the loan as soon as possible, you may want to go through the contract and ensure the deal doesn’t come with any early repayment charges.

  • PPI

Payment Protection Insurance isn’t the most popular type of insurance, but it can be useful, especially if you’re unsure you’ll be able to pay the personal loan in time. A PPI policy will cover your monthly loan repayments, in case you become unable to pay your debt, be it because of sickness or unemployment. If you think you’ll need this type of protection, ensure you have one before taking out the loan.

  • TAR

The Annual Percentage Rate (APR) may be the standard way of comparing the annual cost of a loan, but it doesn’t always give the full picture as to how much you’ll pay. Therefore, the best way to compare loan providers is to look at the TAR, or Total Amount Payable. Unlike APR which only represents the loan’s interest rate, TAR includes all the charges you’re set to pay from the first payment to the last.

The quoted APR may seem reasonable, but it could be excluding charges like routine one-time fees paid to other parties besides the lender and penalties such as late repayments and service reinstatement fees.

  • Gimmicks

Personal loans are essentially simple products, but lenders like to entice borrowers with offerings like cashbacks and payment holidays. Loans with cashbacks may seem great, but you’ll lose the discount if you decide to pay your debt early. Payment holidays, on the other hand, relieve you of paying your installments for a few months but the interest will still build up in that time, increasing your overall repayments.

If a financier tends to focus too much on such additional benefits, be vigilant. Brokers are especially famous for being less transparent, so it’s perhaps best to work directly with a financial agency. Reputable lenders like will ensure you’re well informed before you sign up for a personal loan.


Qualifying for a personal loan can give you a way out of a tough financial situation, but the wrong step may get you into even more trouble. Nevertheless, keeping these five factors in mind will help you to make an informed financial decision.