Affordable Loans

Affordability is undoubtedly one of the most important factors that borrowers look for when they search for a loan. Nobody wants to pay more than necessary for any product or service, and it’s no different with a loan.

To help potential borrowers research and find an affordable loan that works for them, we’ve compiled a list of answers to some common questions asked by credit-conscious customers.

What is a loan?

A personal loan is a sum of money which you borrow from a lender and pay back in monthly instalments. Your monthly repayments will include interest, and you’ll be required to make these repayments in full and on time until your chosen term comes to an end.

Many people turn to a loan in the event of a financial emergency, such as a broken boiler. If you’re confident that you’re able to afford your monthly repayments, a loan could be a suitable option to consider if you don’t have access to savings or help from family and friends.

What is an affordable loan?

The dictionary definition of ‘affordable’ is simply something that is not expensive.
Of course, what’s considered ‘expensive’ will vary from person to person; everyone’s finances are different and so is everyone’s idea of what’s affordable and what’s not.

If you do see a company advertising ‘affordable loans’, it’s important to check the annual percentage rate (APR), shop around, and compare costs before you make a decision. When looking for a loan, you should always do your research to ensure that you’re getting the best deal for you.

What’s APR?

APR refers to the annual cost of the loan and includes interest and any standard fees.
Other fees, such as early or late repayment charges, will not be included in the APR.

When searching for an affordable loan, you may wish to pay particular attention to the APR; the lower the APR, the lower the cost of borrowing.

What’s a Representative APR?

When you see a loan advertised with a Representative APR, it means that at least 51% of approved applicants will be offered this rate or lower.
The exact interest rate you’re offered will depend on various factors, including your credit history, affordability, and income.

Can I get an affordable payday loan?

Due to their typical short-term borrowing window, which is usually a month, a payday loan could come with a higher interest rate, and this will increase the overall cost of the loan.

In 2014, the Financial Conduct Authority (FCA), introduced new guidelines around payday loans:

• Daily interest and fees must not exceed 0.8% of the amount borrowed.
• The overall amount of interest and fees paid must never exceed the total amount of money borrowed.
• If a borrower defaults on their repayment, they cannot be charged more than £15 in fees.

These changes were brought in to help make short-term borrowing more affordable.

A payday loan must usually be repaid in full within a month. Spreading the cost of borrowing over a longer term could make the loan more affordable for you; that’s where short-term loans come in.
Little Loans does not work with any lenders of payday loans, but the lenders on our panel do offer short-term loans with repayment terms ranging from 3 to 60 months, depending on the amount of money you apply to borrow. With Little Loans, you can search for a short-term loan between £100 and £10,000.

Questions to ask when searching for an affordable loan

When searching for an affordable loan, you may wish to ask the following questions:

• What is the APR/ Representative APR?
• Are there any standard fees associated with the loan?
• Are there any additional fees to take into consideration? For example, if I wanted to repay the loan early, could I do so without incurring a charge?
• What’s the best repayment term for my circumstances? Repaying the loan over a shorter term will mean that your monthly repayments are higher, but you’ll pay less in interest overall. A longer term will provide you with more time to repay the loan, but you will end up paying more interest.

It’s important to only ever borrow the amount of money that you need and can afford to repay.

How can I check whether a loan is affordable for me?

As we’ve mentioned, whether a loan is affordable for you will be highly dependent on your personal finances.
Before you search for a loan, it might be worthwhile to sit down and work out exactly how much you could comfortably afford to repay each month.
Repaying a loan should never leave you unable to cover the cost of your essential monthly outgoings, such as bills, food, or rent and mortgage.
Remember to include those necessary extras, like dental appointments or prescriptions.
The key is to avoid overstretching your budget.

How much will an affordable loan cost?

The overall cost of a loan will depend on several factors, including the amount of money you borrow, how long you borrow it for, and the interest rate you’re offered.

Search for an affordable loan with Little Loans

It can be tricky to know where to start when searching for the most affordable loan for you. This is where Little Loans could help.

When you apply for a loan directly with a lender, they will only check your eligibility for their product(s). Each time you make an application with a direct lender, they will carry out a creditworthiness assessment, which could include a hard search. A hard search will remain on your credit file for up to 12 months and will be visible to any other company that views your file. Making multiple direct lender applications could result in multiple hard searches, which will damage your credit score.

Little Loans is a credit broker with access to over 30 FCA authorised and regulated lenders. Our lenders offer loans between £100 and £10,000.

When you fill out our straightforward, five-minute, online form, we’re able to scan our panel of lenders for a suitable loan for you, based on the information you’ve provided. We use soft search technology with no impact to your credit score.
Our service is free to use and could help to save you time and protect your credit score from multiple hard searches.*

Could I get an affordable loan if I have bad credit?

Several of the lenders on the Little Loans panel specialise in loans for people with bad credit.
While it might be possible to get a bad credit loan, it’s very important to bear in mind that it could come with a higher rate of interest, which, depending on your financial situation, could make the cost of borrowing less affordable.

Before you apply for a bad credit loan, you should seriously consider how the cost of monthly repayments will affect your personal budget.

Will an affordable loan affect my credit score?

Yes, a loan will affect your credit score.
If your repayments are made in full and on time each month, you could see an improvement in your credit score, but this will depend on whether you’ve also kept up to date with any other credit commitments you may have.
A late or missed repayment will cause your credit score to decline.
Some lenders may also charge a late fee(s), which will need to be paid in addition to your standard repayments.

What’s the difference between a secured and unsecured loan?

A secured loan is when you secure the money you borrow against an asset, such as your home. This is called ‘collateral.’ If you fall behind on your secured loan repayments, the lender could take ownership of the asset and sell it to recover the money they’ve lost.

As they pose less of a risk to the lender, a secured loan could come with a lower interest rate than an unsecured loan.

When you apply for an unsecured loan, you will not need to secure the money against an asset.

Whichever type of loan you’re researching, you should think very, very carefully before you apply.

Little Loans does not work with any lenders of secured loans.

Alternatives to loans

A loan will not be the right financial product for everyone. If you’ve decided against taking out a loan, you might wonder if there are any other affordable options to consider.

1. Do you have any savings? Dipping into your savings to pay for an unexpected expense, such as a broken vacuum cleaner or car repairs, can be disheartening, but using your own money, rather than borrowing, will of course mean that you won’t need to pay interest.

2. How urgently do you need money? If it’s something that can wait, is there a chance that you could save up for a couple of months instead? We understand that this won’t be practical in every situation.

3. Could a loved one lend you some money to tide you over? If you do borrow money from a friend or family member, it’s crucial to agree on a repayment plan. If not handled responsibly, borrowing money could pose a risk to your relationship, so it’s vital that you stick to the agreed repayment schedule.

4. Have you thought about a credit card as a loan alternative? There are different types of credit card available; some could help you build up your credit score, while others may come with a period of low or no interest. Like a loan, a credit card is a serious financial commitment, and you should do thorough research before you apply.

I need financial advice; who can I speak to?

Please know that you can access free, confidential advice on money and debt management through the following sites: StepChange, MoneyHelper, Citizens Advice, and National Debtline.

*If you’re matched with a loan and choose to make a full application with the lender, they will carry out a creditworthiness assessment. This could include a hard search. A hard search will remain on your credit file for up to 12 months, and undergoing multiple hard searches within a short space of time will negatively impact your credit score.