If you want to find a good loan rate, you will have to shop around to find the loan and interest rate that best suits your needs. You can do this with our online comparison tool.
Getting the best interest rates doesn’t just depend on who you borrow, but also how much and for how long.
If you took out a personal loan of £ 4,500, would you expect the interest you were to pay back to be?
A – Less than if you borrowed £ 5,000?
B – The same as if you borrowed £ 5,000?
VS – More than if you borrowed £ 5,000?
You might be surprised to learn that the correct answer is “C”.
You would be forgiven for thinking that if you borrowed less money you would get a low rate loan. It’s not always the case.
Why should I pay a high interest rate for a smaller loan?
When you compare the cost of borrowing to buy a home – called a mortgage – and the cost of a personal loan, the rates are not the same. The interest rate for a home loan is often much lower than the best interest rate for a personal loan. You might think you wouldn’t have to pay high interest rates on a small loan, but lenders set interest rates differently, depending on how much risk they think they are taking.
Why are loan rates different?
When a lender decides whether to give you a loan and how much interest to charge you, they’ll consider the risk of you not paying them back. If you borrow to buy a home, they could get their money back by repossessing your home if you default on your mortgage payments. This is known as a secured loan because the loan is secured against the overall value of your property. It is considered to be much less risky for the lender.
If you borrow a small amount that is unsecured by the value of your home, the lender has less certainty that they will get their money back. So a Personal loan is called unsecured loan. This is because the lender has nothing they can claim if you don’t pay, and the loan is not secured by an asset. This is why unsecured loans tend not to offer low interest rate loans and have higher interest rates even though the amounts of money borrowed are much smaller than the average mortgage.
How are loan interest rates calculated?
When a lender like a bank, mortgage company or loan company decides how much interest to charge, they will take a number of factors into account:
How likely are you to refund the money
What is the risk that the lender takes by lending you
Whether you have a good track record to keep up to date with payments
How much do you want to borrow
How long do you want to borrow money for
If I want to borrow a small amount for a short period, shouldn’t I get a good loan rate?
For a lender, if a customer wants to borrow a lot of small amounts of money, they may have problems with their cash flow.
They might see you as desperate, with no savings to rely on, and less responsible for your personal finances. If they see you as a risky customer, they’ll lend you less and charge you a higher interest rate on your loan if they decide to make you an offer.
Also, a small amount of money is unlikely to be backed by an asset like a house, so the chances of you not paying back the money you borrowed are higher.
Why are loan interest rates different from what is advertised?
Lenders advertise loan interest rates, but there is no guarantee that you will get the lowest interest rate on your own personal loan.
Lenders need only offer the best representative APR rates advertised to 51% of successful applicants. When your credit rating isn’t up to par, you might not qualify.
The interest rate charged by the lender is known as the APR or annual percentage rate.
The APR that a lender sets for a loan shows the risk the company believes it is taking and the likelihood that it will get its money back.
Mortgages generally have a large loan amount and lower interest rates, equivalent to low interest rate loans. While at the other end of the scale, payday loans are generally for very small amounts, but have huge APRs.
In addition, lenders should only offer the best rates to half of their customers. These lucky customers are probably the ones with the best credit scores. Other customers will be offered an offer, but at a higher interest rate because they are perceived as riskier.
Loan Interest Rates – How To Find The Best Loan Interest Rates
When looking for a loan, you should start your research by comparing the APRs on different loan amounts. You may find that by borrowing more you can reduce the amount you pay back in interest.
An APR is the annual percentage rate, which is the interest rate on the loan plus any fees, such as set-up fees.
If you’re worried about the temptation to borrow more money than you actually need, you can put the extra money in a savings account or, if there is no penalty, pay it back immediately. ‘surplus.
What should i watch out for when comparing loans?
Things to look out for when comparing loans include:
The repayment period
Fixed or variable rate
To find the best loan deals, the APR (Annual Percentage Rate) is one of the most important things to consider.
The APR includes interest and any additional costs such as set-up costs. The higher the APR, the higher your reimbursements.
What factors influence my credit report?
The interest rate on your loan – known as the APR – depends on your personal credit rating. Several factors influence your credit rating:
if you are registered on the voters list and how long you have lived at your current address
if you can prove that you are responsible for the credit, stay within your borrowing limits and repay on time
your credit rating has not been affected by county court judgments or other bad debt issues
you have a history of credit – if you are very young there may not be a lot of evidence on how you can handle credit even if you are reasonable with your money
if you have other forms of borrowing – lenders can see if you have recently applied for credit from other sources a lot
What is the real interest rate?
The interest rate, known as the APR includes the interest rate on the money borrowed. Plus any additional fees and charges, such as set-up or arrangement fees, or transfer fees if you transfer debt from one lender to another.
What will i pay when i get a loan?
In the cost of repaying your loan, there will also be the cost of establishment costs, as well as any additional services, such as insurance.
You will pay a monthly sum as part of the loan repayment. Any applicable installation or arrangement fees will generally be indicated in the APR.
What can I do to reduce the interest rate on the loan?
If you want to lower the interest rate on a loan in order to find a better interest rate, there are several ways you can do it:
Pay attention to your credit rating – make sure you are on the voters list
Pay your other forms of borrowing on time, including mobile phone bills, TV and broadband plans, and credit card payments
Don’t apply for a lot of credit in a short period of time – it will make you feel like you are in desperate need of money
Don’t borrow the maximum on all of your credit cards – lenders like to see that you are not “maximum” on your cards
How can I find out more about loans at the best interest rates?
You can use our comparison tool to find lenders with low interest rates and compare which bank is offering the lowest interest rate for a personal loan for you.
If you want to get a low interest loan, keep in mind that the best online personal loan rates are available for people with good credit rating and low risk profile.
You can learn more about loans with our step by step guide on how to compare loans.