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
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.
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.