Low Cost Loans

What makes a low cost loan?

Low cost loans are by definition cheaper than other products for borrowing money. The best low cost loan for you is however not necessarily the right choice for someone else.

The best low cost loan for you will be suited to your own personal situation and requirements. Another person’s circumstances and needs will be different and hence another product may be best for them. The best low cost loan for you will be the product where the total expenditure to you is less when adding the fee for applying for the product and then paying back the capital and interest to the lender.

A low cost loan is what any potential borrower would want because it makes no sense to pay a higher level of interest than you need to. Unfortunately certain products may not be available to you because of your credit history or the amount of money you need to borrow. Many low cost loans will have headline interest rates but they may also have additional or hidden charges which may make the product more expensive overall when comparing the total expenditure.

Is interest rate the key factor to a low cost loan?

Many borrowers would simply believe that a low cost loan is the product with the best APR however it is not that simple. Just because a product has the headline interest rate and appears highest in the best buy table does not mean it will be the cheapest for you. This is how many lenders make their money because customers apply based only on the headline rate without doing their homework and comparing the total expenditure with their own requirements.

Low cost loans are now provided by many lenders, from banks and building societies to newer lenders that have been launched in the last few years (e.g. Cahoot or AA). Many lenders who offer these products do not have high street branches and so they have reduced operating expenses. Because the lender keeps their expenses down they can offer a headline interest rate and pass on significant savings to you the customer.

Many low cost loans are only available online so you will need access to the Internet to apply for and manage your account on-going. Established banks who offer low cost loans at competitive rates are doing so to compete with the new entrants in the market and this is only good for you if you are looking to borrow money cheaply.

The typical APR for an unsecured low cost loan is 6.0% or less. The typical rate will be higher for a homeowner or secured low cost loan and there are more factors to consider which can increase the total expenditure to you. If you need, for example, to take a secured low cost loan over a 25 year period, the monthly payment may be reduced but the total expenditure will almost certainly be more expensive.

When you’re looking for a low cost loan you should be aware of the additional charges because they can have a big impact of the total expenditure. Some lenders charge an arrangement fee to open the product when you apply. This fee will need to be paid up-front and you will need to consider whether it is worth paying the fee to get the better interest rate and hence reduced monthly payments.

If you think that you may have spare money to pay off the outstanding balance before the end of the repayment term you should review whether the product has an early repayment fee, or settlement charge. These fees can be high and you need to know up-front before you apply.

Another important factor is the payment protection insurance that you may need to take out when you apply. This insurance will provide peace of mind during the repayment period by covering the monthly payments should you find yourself involuntarily unemployed or off work due to accident or ill health. The majority of policies also provide to pay off your outstanding balance in full in the event of your death.

The charge for payment protection insurance varies considerably from lender to lender and should be a key part of your research in your choice of a low cost loan. You should review if the lender requires you to take their insurance and factor this into the total expenditure. If not, and you want the additional cover, you should shop around for the best insurance product for you. Your lender may require details of your insurance policy when you apply but this is commonplace in the industry.

The interest rate is an important factor and can help to identify a range of potential products for you. However the key to you is the up-front application fee, the monthly payment and the total expenditure of paying back the money.

See Myloanchoices best buy secured loans

See Myloanchoices best buy unsecured loans

How to find the best low cost loan and apply online

Low cost loans are available from many lenders and new products are being launched all the time. It is vital that you take the time to research all the products available to ensure that you get the best interest rate available but also the most appropriate monthly payment and total expenditure.

The first step when you are comparing products is to ensure you are comparing like with like. All lenders quote a typical APR which is the interest rate that 66% of successful applicants get offered by the lender. You need to understand your credit history because you may be one of the unfortunate applicants that is unsuccessful and gets offered a higher interest rate due to their poor history of paying off credit.

See Myloanchoices guide to credit history

There are other charges that make a big difference when considering a low cost loan. For example, some lenders charge an arrangement fee when you apply. This fee is separate to the amount of interest paid over the repayment period but you should add this fee to the total expenditure when you compare products. You may be better off choosing the best low cost loan with a slightly higher interest rate but no up-front fees.

The interest rate is very important when choosing a low cost loan but it is not the only product feature to consider. Many products have features such as the facility to take repayment holidays and the potential to pay off part or all the credit early. You need to review the product criteria to decide whether these features are more important to you than having the best interest rate.

Myloanchoices offers impartial information and search services on low cost loans to help you decide what product is right for you. You can use our repayment calculators to work out how much your monthly repayments will be for different interest rates. You should then review our best buy range of low cost loans and review the detailed products features of each recommended product. When you have completed your research you can apply online by clicking through to the lender’s website to start the quick and easy application process.

See Myloanchoices best buy secured loans

See Myloanchoices best buy unsecured loans