Applying for a loan

What to do before you start

Before you apply for a loan, look at your budget and work out how much you can afford to repay each week or month. Allow some leeway for unexpected costs, such as medical bills or car repairs.

No matter how much you’re offered, ask yourself:

• How much do you need to borrow?
• Will you be able to afford the repayments, even if you lose your job or your working hours are reduced?

Credit always comes at a cost. You pay interest on what you borrow and may also have to pay administration or set-up charges. Borrowing money always costs more than paying with your savings, due to interest and fees. Consider whether you really need the loan or if you could save up instead.

Don’t take on more debt than you need or can afford. If you have trouble repaying a loan, your credit history may be affected, making it harder to borrow in the future.

How long should you borrow for?

The longer your loan lasts, the more you pay in interest. Try to match the loan term to your reason for borrowing:

• If you borrow for a holiday, aim to repay it before your next holiday
• Pay off your car loan over three to five years
• For larger loans, like home improvements, you can spread the cost over five to 10 years if the benefits last longer

What type of loan should you choose?

When looking for a loan, shop around for the best deal. Use the CCPC Loan comparisons tool to get started comparing interest rates and terms.

Fixed rate

Pros

The interest rate and the amount you repay each week or month is guaranteed to stay the same throughout the term of the loan.

Cons

• Even if interest rates fall, your repayments won’t.
• Many lenders won’t allow you to make extra repayments without a fee.
• You may have to pay a fee if you want to pay your loan off early.

Variable rate

Pros

• You can usually pay off your loan early without a fee by paying more each week, or month, and/or some or the full amount you owe in one lump sum.
• Your repayments will decrease if interest rates decrease. If you keep repayments at the same amount you started at, you will pay off the loan early.
  

Cons

• Interest rates could rise during the loan term.
• If this happens, your interest rate will also increase. The lender may respond in one of two ways: they might increase your repayment amount, or they might increase the number of repayments you have to make. In the latter case, your weekly or monthly repayments will stay the same, but the term of the loan will be longer.

How flexible is your loan?

Flexibility is important if your circumstances change. For example:

• If your income drops, can you extend your repayments?
• If you get extra money, can you make extra repayments and reduce your interest?

Loans where interest is calculated daily offer the most flexibility, as any extra repayment immediately reduces your interest charges.

How do you compare loan costs and interest rates?

When shopping around for a loan, you should always compare the interest. You can do this by comparing:

• The APR (annual percentage rate) and/or
• The cost of credit

APR (annual percentage rate)

All lenders must quote the APR. This includes the interest rate, loan term and any fees. You can use APR to compare loans of the same amount and term.

You cannot use APR to compare loans of different terms – if the terms are different, you should look at the cost of credit

The lower the APR, the less you will pay overall. For different terms, use the CCPC Loan comparison tool to compare the cost of credit.

Example: Repayments on a €10,000 loan over five years

While interest and set-up charges are built into the APR, there may be other costs of borrowing. Remember, you have to be given a full list of fees and charges on a loan. Always ask for an explanation of any charge you don’t understand.

When comparing loans, make sure the repayment does not include the cost of payment protection insurance insurance (PPI) and if it does, only compare the actual repayments excluding any PPI costs.

Cost of credit

The cost of credit is the real cost of borrowing. It’s the difference between what you borrow and what you repay.

How to calculate:

1. Multiply your regular repayment by the total number of payments
2. Add any other charges (e.g. administration fees) – this gives you the total you will repay on your loan
3. Subtract the amount you borrowed – this is the cost of credit

The longer the term of your loan, the higher the cost of credit. For example, John takes out a €2,000 loan. He is happy with the interest rate but is unsure about what loan term is best. The table shows the effect of different loan terms on the cost of credit.

The longer the term, the lower the monthly payment, but the higher the total cost. This is because you pay interest for a longer period.

You can use our loan calculator to work out the monthly repayments and cost of credit for loans depending on:

• How much you want to borrow or
• How much you can afford to pay back each month

What is loan security?

Lenders may require security for a loan. Be very careful about using your home as security – if you can’t repay, your home could be repossessed. Only use your home as security if you fully understand the risks.

Some lenders may also ask for a guarantor, usually a family member or friend, who agrees to repay the loan if you cannot. This can put the guarantor’s finances at risk, so both parties should understand the obligations before agreeing.

What if you change your mind after applying?

You have a 14-day ‘cooling-off period’ from when you receive the agreement. You can cancel for any reason by letting the lender know in writing – unless you have signed to waive your right to a 14-day cooling off period. The lender will not release the funds until the cooling-off period has ended.

What questions should you ask before taking out a loan?

Question to ask about the loan and repayments

• What is the rate of interest (APR) on the loan?
• Is it fixed or variable? If you choose a variable interest rate, ask your lender to explain how interest rate changes will affect the loan and your repayments. If you choose a fixed rate, ask your lender to explain what would happen if you wanted to repay your loan early.
• What is the cost of credit?
• What term is best suited to the purpose of your loan? Remember, the longer the term, the more you will pay in interest.
• Are there any other fees and charges you must pay?
• Do you need some security to guarantee that you get a loan?
• Will extra repayments be credited to your account right away and immediately reduce your interest bill?
• If you are considering taking out a loan through a retailer, such as a shop or garage, would you get a better deal by paying now, rather than later if you can afford to do so?
• Is there any large "balloon payment" at the end of the loan, or finance agreement, that you have to budget for?

What should you do if you are refused a loan?

When you apply, the lender will check your credit history. You can learn more about what’s included on the Central Credit Register on the Central Bank of Ireland’s website.

You can request a free credit report (subject to fair usage). Submit a request through the Central Bank of Ireland’s website.

If your application is refused, it may be because the lender believes you cannot afford the repayments or have too many other commitments. You can ask the lender to explain why you were refused.

If you are refused by one lender, you may still be approved by another, as lenders use different scoring systems. It’s always a good idea to shop around.

If you’re repeatedly refused a loan or struggling with debt, contact the Money Advice and Budgeting Service (MABS). MABS offers free, confidential support and can help you review your finances. 

You cannot change a bad credit report unless the information is incorrect

You may be refused a loan because of poor credit history. A credit report provides an accurate record of your loan repayment history. Unless the details are wrong, your information cannot be changed. The lender, not the credit reference agency, decides whether to give you a loan.

If you are turned down and have never had problems repaying loans, check your credit history for errors. You can request a report for free from the Central Credit Register.

If there is a mistake, you must submit a formal request to the Central Credit Register to correct any errors. You are entitled to have mistakes corrected and should ask for a copy of the corrected report.

If your problem isn’t solved, you can contact the Data Protection Commissioner or complain to the Financial Services and Pensions Ombudsman (FSPO).