Is low Interest the Best Way to Pick a Loan?

When you are choosing a loan then it is best to use a number of criteria to decide which one to take out. It can be tempting just to compare interest rates as that is what comparison websites do, however, you may want to look beyond these.

Total cost

It is worth noting that often the interest rate of the loan does not tell the full story with regards to cost. There may be other costs as well. There may be a charge for setting up the loan or other sorts of admin fees. These could add up and make a significant difference to the overall cost of the loan and so it is wise to make sure that you are aware of them. If you compare the AER rather than the interest rate then this includes these costs and therefore should be a better way of doing things. These may still not be the only costs though. You need to consider that there will be charges if you make a late repayment or miss a payment or things like this. It is likely that you will hope that you will not do this of course. However, it is worth just being aware of how much these charges will be so that you can compare the different loans. If they have a similar AER but their late payment charges differ a lot, then this could be a good reason for you opting for one rather than the other. Also knowing how much those charges are should help to give you a good incentive for making sure that you pay on time.

Ease of repayment

Understanding how much you will have to repay and how often is really important as well. You need to make sure that you will be able to afford this for the whole time that you need to pay it. You should be aware of how much you will be charged if you do miss a payment and hopefully this will enable you to understand that it is important that you should ensure you can make the payment on time and in full. Once you know how much you will be expected to pay, it is a good idea to look and see whether you think that you will be able to afford this. Look at your previous bank statements to see whether you normally have this amount of money available to you. If you do not then you will need to think about what you will be able to do so that you will be able to afford it. It could be that you will be able to reduce your spending in some areas, where you buy items that are not necessary or that you will shop in cheaper places so that you can buy the same things but spend less. Obviously how much change you need to make to your normal spending will depend on how difficult it might be for you to afford the repayments. It is always good to have a plan even if you can afford the repayments as the cost may go up if you have a variable interest rate and the rates increase. If you have picked a loan because it has low interest, it does not mean that it will not rise in line with increases in the base rate unless it has been fixed. Therefore, you will need to think about how you would manage should this happen.

Other factors

There may be other factors as well as financial ones that you may want to consider when you are choosing a lender. Some people, for example, want a lender that has a local branch so that they can speak to someone about the loan. Some people want to make sure that the customer service department is really good so that they can get hep if they want it. Some people want to use a lender they have heard of and others have concerns about reputation.

It is therefore worth thinking about which of these concerns might be relevant to you. We are all different in what we expect from lenders and so you need to think about what it is that will be important to you. Even if interest rates and costs are the most important to you, there may be some other factors that are important or you might use these to choose between lenders that are very similar in cost. It is worth spending time thinking about what you want and making a list. As you start to research you may want to add or take things away from the list as you will be learning more about lenders and what you should expect from them. This will take some time but it will be worth it if you can find a lender that matches your expectations.