12 tips on how not to get a loan

Here are a few tips on how _not_ to get a loan, and underneath each one, the smart thing to do instead.

1. Ignore borrowing costs.

Examples of these are insurance schemes and prepayment penalties. Make sure you understand and are willing to pay them all. Understand your agreement before you sign, including terms and conditions.

A loan may become too expensive, with variable interest rates and fees. The total cost of your loan will depend on the annualised percentage rate (APR). The annualised percentage rate takes into account the interest amount, and all other charges.

2. Pick the first lender you think of.

Deals vary enormously, from loansharks to credit unions. Consider fully mutual building societies and credit unions, then find companies that are dedicated to loans. The first were set up to help members, and the latter's earnings come exclusively from lending money. They can offer better deals.

3. Communicate by telephone only, and don't record the name of who you spoke to.

Make sure you get the full name of the person with whom you speak, if you call your loan company. Big offices are impersonal; your loan officer could leave at any time. Write letters to keep a record of important points.

4. Take on a loan thinking "Well, I can always go bankrupt".

This is stupid. You will find it very hard to get credit of any kind in the future, when you need it badly.

5. Avoid researching the lender.

Type the name of the lender into a search engine. See if there are any negative postings about them.

6. Who cares what it'll cost you!

Think about your budget; how much can you afford each month? Then leave a portion of your monthly income aside as coverage for emergencies and unexpected bills.

7. Take your time paying it off.

No matter how cheap a loan may be, pay it off as quickly as you can to avoid interest accumulating. Try to get a loan that allows early payments; the quicker you pay back, the less interest you pay. If you extend the duration of the loan, you will have to pay much more in interest.

8. Make lots of enquiries in a short space of time.

Any more than four credit checks in one month for a personal loan looks suspect, and may affect your credit rating. When shopping for a quote, ask them if they're going to check your credit-rating, to be on the safe side. They don't need to, to give you a rough estimate.

9. Have lots of credit available to you, then ask for more.

To ensure you get the best terms, keep your credit-line as small as possible. Loan officers tend to count the total line of credit available as a liability.

10. Default or make late payments on small debts.

Not paying off that hire-purchase agreement years ago will come back to haunt you. Pay off small debts before they're due. Cancel credit cards you are not using. IMPORTANT: Keep your oldest card, for the credit history attached to it. Otherwise, consider their interest rates and fees, when deciding which ones to hold on to.

11. Sign papers without reading them.

You're anxious. You want the money _now_. Cue major upset later when you realise what's in the small print.

12. Keep quiet about repayment problems.

If you have problems with repayment, write to your lender as soon as possible. The earlier you tell them, the more sympathetic they'll be. You can then make arrangements for under-repayments until you get back on your feet.