While Interest Rates are Low is it a Good time to Borrow Money?


Interest rates have been low for a long time in the UK and it can feel like this can be a good time to borrow. This is because while the rates are low it means that borrowing is cheaper. However, there are many things that we should consider when we are thinking about borrowing money and the interest rate is only one of them. It is also worth noting that if rates are low then they are more likely to rise in the future than fall. This means that if the loan you are taking will last a long time then the loan costs may increase over time.

Total loan costs
It is worth being aware that the advertised interest rate does not properly reflect the cost of the loan in total. Firstly, those with a low credit rating may find that they will not have the opportunity to borrow money at the advertised rate; but they may be offered a more expensive rate. Also, the interest rate may not include other costs such as any set up costs of the loan, for example. There may be other fees that you may or may not need to pay as well, such as early redemption fees if you decide to repay the loan early or late payment fees if you do not make a repayment on the agreed date. It is worth making sure that you are aware of all of the costs you will have to pay as well as those that you might have to pay so that you can compare them. If you look at the APR and compare that, it includes any fees you have to pay as well as the interest rate and so this will help you to compare the loans better. Once you know the cost then you will be able to decide whether you think the loan will offer you good value for money.

Repayment amount and term
It is always wise to find out how much you will need to repay and how often. It is important to then calculate whether you will be able to afford these repayments. If you are not sure, then you will need to look back at some bank statements to see how much money you typically have left at the end of each month and this will allow you to work out what you will be able to afford. If there is no spare money then you have two options. You can either not take the loan or you can come up with a strategy as to how you will afford the loan repayments either by earning more money or by spending less.

Also note how many repayments there are as you will need to keep paying them until the loan is repaid. This could be anything from a few weeks to a few decades and so it is really important to know how long you will need to commit to these repayments. This will allow you to think about whether you will be able to keep making changes to enable you to afford those payments for all of that time. Also consider if interest rates rise whether you will still be able to afford them.

Lender
You may also be interested in the lender. You might want to choose a lender that has a good reputation, for example. This might mean that you will need to do some research in order to find out more about them. You might want to ask family, friends or colleagues or look at online reviews. It is probably best to do both if you can.

You may also be keen to use a lender which has a local branch so that you can discuss any questions, queries or problems that you have face to face. You nay also want to make sure that they have a good customer service department. We often have to contact these for help and you might want to check that you can get through fairly quickly and that your query is answered politely, efficiently and satisfactorily.

So, although it may seem like a good time to borrow money, there are many other aspects that you should think about when choosing a lender rather than just interest rates. It is also wise to think about the purpose of your borrowing and whether it is really worthwhile. You also need to think about whether the type of loan that you are considering is the best one for the purpose of your borrowing as well as the costs. There are a lot of things to consider but if you do not think hard about the loan you could end up borrowing at the wrong time, for the wring things and for too high a price and not being able to repay it.

Should the Idea of Student Debt Scare you?


There are many people that worry about student debt. The students themselves, graduates, younger children and parents. However, this is often due to a misunderstanding about student debt. There a number of false beliefs; not helped by the media, which can lead to a lot of unnecessary worry with regards to student debt. Many parents would not have paid for their university education and so not be used to the idea of their children being in debt in order to pay for the course. The same applies to many people in the media and this is why many scaremongering articles appear. It even seems like sometimes politicians have no understanding of how it all works.

How do Student Loans Work?
It is firstly important to understand that although they are called student loans they are not a loan in the way that we would normally understand a loan to work. Firstly, repayments only start once you have graduated and are earning over a certain threshold. Then the repayments are taken through your tax code, meaning that you are taxed a bit more and that money goes towards paying the debt. This means that only those graduates earning enough money to afford the repayments will be having to pay them. After thirty years any remaining debt will be written off and at the moment only about a quarter of graduates pay their loans off in full before the thirty years is up.

Graduates get a letter each year telling them what they still owe and showing them the interest charged. These can look scary as you may feel that you are in lots of debt. However, it is important to remember that if you do not pay off all of the loan, then the interest will be irrelevant as you will not pay that. It is only if you are completely sure that you will pay off your loan in time, that you should consider paying it off and avoiding those interest charges. It will depend on what career you expect to have, if you expect to take any career breaks or start to work part-time and how much you expect your salary to be.

Are the loans scary?
There is really no reason why you should find the loans scary. A student loan does not show on your credit record and so it will not influence your ability to borrow money. The repayments are taken out before you are paid so you have no chance of forgetting a repayment or missing one (unless you are self-employed when it would be calculated when you did your tax return). They can basically be ignored as you will need to do nothing with them and there is certainly no sense in worrying about paying them back as this will only happen if you can afford it.

There is no reason why graduates should worry about student loans nor parents or younger children as the debt just gets paid off automatically when it can be afforded. There is only one exception to this which is that a change of government could mean a change in the rules. This should, in theory, have no impact on those that already have a student loan agreement but it could impact those who have not yet had a loan. It is worth being aware of any changes but be careful to ignore any media stories about interest rate increases making student loans too expensive. Bear in mind that most students never repay their interest anyway.

Who Might be Justified in being Scared?
It is probably the middle income parents that might have most cause for concern. Those students form low earning families may be lucky enough to get a grant and if not they will get a full maintenance loan as well as enough to cover their fees. However, those students that have higher earning parents will not get a grant and may not get a full or even any maintenance loan. It is calculated depending on family income and the thresholds do change.  This can mean that a child going to university could end up with only being eligible to get a loan to cover the course fees and will therefore have no money to live off. Then parents have to think about supporting their children through university or whether the children will need to work in order to pay for it. It may mean the children delay university and get a job to save up money. That they work part-time while at university or that parents pay for their rent and other things that they may need.

So the idea of student debt should not be scary to anyone as the way that it works is very fair and manageable. However, the idea of student loans being means tested can be scary for some families and could mean that some children form better off households may not be able to go to university or may have to work while they are there if their parents are not able to support them.