Is the Cheapest Loan the Best Loan?
When you are looking to borrow money you will obviously want to pay as little as you can for the loan. However, when comparing interest rates, you may find that you miss out on other important factors that could influence your decision. It is worth thinking beyond the interest rates sometimes.
Firstly, it is worth noting that most comparison websites will only compare the best possible interest rates. Lenders do vary their rates depending on how much risk they feel their borrowers are. This means that there is no guarantee that you will get the advertised rate and so you need to be wary and make sure that when you decide who you want to use, you will check what interest rate they offer you before signing up and also check for other costs. They may be administration fees that you need to pay to set up the loan, depending on what type it is. This may be a significant cost and so it is something that you need to check out as well.
As well as the cost though, there are other things that could be factors for you when you are choosing a loan. Loans without a credit check being one example. You need to consider whether there is anything else that is important to you as well. This could include many factors and it will help you to decide whether you are getting good value for money.
You need to consider the type of loan and whether it is right for you. Think about whether it is flexible enough for you, whether it has good customer services, what its policies are if you cannot cover repayments, whether you can overpay and things like this. It is important to think about what you want out of the loan and whether it is giving you what you want.
As well as this you need to consider the type of loan. The cheaper loan may not offer exactly what you want with regards to the repayment term, whether it is fixed or variable interest, the size of repayments or even the amount that they may allow you to borrow.
It is worth thinking about how much you can afford to repay and seeing whether the repayments on the loan will be affordable for you. You need to consider whether you normally have that much money extra to be able to make the repayments and if not, whether you could find a way to get the money. Perhaps by increasing your earning or spending less you might be able to manage, but you need to plan it out. If the repayments are too high for you to manage then you may have to find an alternative loan that allows you to repay over a longer period so that the repayments will be smaller. This will be more expensive, as the longer you take to repay the dearer the loan, but if it means you can manage financially, then it could be worth it.
You may want to make overpayments on the loan at times, so that you can pay it off early and save money. Alternatively you may want to take payment holidays if you are short of money. Some lenders will be more flexible than others and if you think that you will need that flexibility then you need to find a lender that will offer that. It may be that they will be more expensive as a result of that but it will be worth it if it means that you get the flexibility that you need.
Look also at whether the interest rate is fixed or variable. If it is fixed you will get the security of knowing exactly how much you will be repaying each month, regardless of whether the base rate changes. It is hard to predict whether rates will change and if they will go up or down, but if you think that you will struggle to manage repayments, then the peace of mind knowing that they will not go up can be worth a lot.
So even though it is wise to look for the cheapest loan, it can also be a good idea to think about other factors that could influence whether a loan is right for you. It should not be a quick decision and you need to spend time thinking about what you need. It can be wise to talk to a financial advisor if you really need help.
