Low Interest Loans

What is a low interest loan?

If you want to borrow money you’ll probably want to keep your monthly payments to a minimum with a low interest loan. These products will have the best or certainly a competitive rate at the time you apply. The big question is whether a low interest loan is the best product for you?

The best low interest loan for you is not necessarily the right choice for someone else. This is because it will be suited to your own personal situation. Another person’s circumstances will be different and hence the best low interest loan for them may be from another lender. The best low interest loan for you will be the product which has the cheapest fees on application and then the minimum total cost to pay back to the lender.

The best low interest loan is by definition what everyone looking to borrow money will want. It will have a good rate because it makes no sense to pay more than you need to. Unfortunately the best low interest loan for you on paper may not be available to you because of your credit history or the amount of money you need to borrow. Many lenders will advertise credit products with a headline rate, however many of these products will also have additional or hidden charges which may make the overall cost of borrowing more expensive.

It is vital that you take the time to understand and prioritise your requirements for borrowing – this is not just how much money you want to borrow but the monthly payment you can afford, the up-front application fees you are able to pay to open the product and whether you will need payment protection insurance. Only when you have decided on these requirements can you research all the low interest loans available to ensure that you get the best product available for you.

What lenders are best for a low interest loan?

Many lenders provide low interest loans and new products are being launched all the time. Many of the lenders are not banks or building societies but instead new entrants to the market like Cahoot or other companies now in financial services like AA.

Most high street banks offer quite high rates for their products. Many low interest loans are only available online hence you will need access to the Internet to apply for the product and also manage it throughout the term of the account. By applying online these lenders cut down on their operating costs so that they can offer you the product cheaper. They are not spending as much money on advertising and hence pass on some of the savings to you the customer.

How important is the headline rate?

Many people believe that the best product for them is the low interest loan with the best APR however this is often not the case. Just because it has the best headline rate does not mean it will be the best total cost 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 costs with their own requirements. Customers acting this way usually end up paying more in the long run.

The typical APR for an unsecured low interest loan is usually from 6.0%. The typical rate will be higher for a homeowner or secured low interest loan and there are more factors to consider which can increase the total cost to you. For example, you may be offered a secured low interest loan with a good monthly payment but because the term is longer, maybe 25 years, the total cost is expensive.

When deciding on the best low interest loan for you it is important to be aware of the additional charges because they can have a big impact on the overall costs. Some lenders charge an arrangement fee to open a 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 reduced rate and hence better 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 best product for you 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 for a low interest loan. 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 cost of payment protection insurance varies considerably from lender to lender and should be a key part of your research. You should review if the lender requires you to take their insurance and factor this into the overall costs. If not, and you want the additional cover, you should shop around for the cheapest insurance product for you. Your lender may require details of your insurance policy when you open your product but this is commonplace in the industry.

The headline rate is therefore an important factor and can help to identify a range of potential low interest loans for you. However the key to you is the combination of up-front application fees, the monthly payment and the overall cost of paying back the money.

See Myloanchoices best buy secured loans

See Myloanchoices best buy unsecured loans

How to find the best low interest loan

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

See Myloanchoices guide to credit history

There are other charges that make a big difference when looking for a low interest loan. For example, some lenders charge an arrangement fee when you apply. This fee is separate to the monthly payments over the repayment period but you should add this fee to the total costs when you are comparing products. You may be better off choosing a low interest loan with a slightly higher rate but no up-front fees.

The headline rate is very important when choosing the best product for you but it is not the only factor to consider. Lenders provide varying product features on low interest loans 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 rate.

Before you apply make sure you think about what you want from a low interest loan. Make a list of your requirements. How much money do you need to borrow? What monthly payments can you afford? How many years do you want to pay the money back over? Would you like to manage your account online? Is there a possibility of you having spare money at a later stage to pay off part or all of the outstanding balance? Are you happy to borrow from any financial services company or will you only consider a well know brand? All these things are important and can influence the best low interest loan for you.

Myloanchoices offers impartial information and search services on low interest 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 rates. You should then review our best buy tables and review the detailed products features of each recommended product. When you have completed your research you can apply online for your chosen low interest loan 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