Category: Borrowing Money

Borrowing Money

The Cheapest Way to Borrow Money

There are many people that look for loans when they need to buy something or they are running short of money. It can be very easy to run out of money before you get paid or to want or need something expensive and not have the money available to pay for it. Any sort of borrowing is expensive as well though and so it is wise to find out what the cheapest way to borrow is so that you do not have to spend more than necessary.

It can be tempting to just compare the interest rates between the different lenders and types of loans to see which is the cheapest. Although this will allow you to know what the lowest interest rate is, it is not a true reflection of the total cost of the loan. It is important to do a bit more maths than this. It is not difficult though. You need to think about how long you will be making the repayments for. The interest will be charged for as long as the debt is outstanding. Therefore if you do not borrow the money for very long, you will make less interest payments than if you borrow the money for a long time. The amount of money that you are borrowing also has a bearing as the more you borrow, the higher the amount of interest and the longer it is likely to take you to pay it back. Sites like Emu.co.uk with their representative examples make finding out this information easy.

For example, you will find that the interest rate on a mortgage will be very much lower than that on a payday loan. However, on a mortgage you will borrow hundreds of thousands of pounds over decades and it has been calculated that you will pay back the original value of the home three times before you pay off the mortgage. However, with a payday loan, you will borrow a small sum of money and pay it back within a month normally and may pay back half again what you borrowed, which will be a much smaller sum than the mortgage. Obviously, these are extreme examples and you will not be comparing these two types of loans, but hopefully it can help you to see why it is important to compare the amount you are repaying in interest rather than just looking at the interest rate.

It is also wise to find out what fees there are associated with the loans. There may be an administration fee for setting up the loan in the first place, for example. There will be fees for late or missed repayments, which are worth being aware of. There may be fees for repaying the loan early. It is worth looking at all of these.

Once you have all of this information, you will then be in a position where you can compare the loans and see which will be the cheapest for you. It will take time and effort to do this, but will be worth it because you will be able to save money on the loan costs. This can make a considerable difference to the overall cost of the loan. If you are not confident in making these comparisons then it could be worth asking a financial advisor for help. You will have to pay one if you want independent advise, but it can be worth it if you are borrowing a lot of money as you can save more than you pay out in fees to them.

It is worth noting that the advertised interest rates are not always the ones that you will get when applying or a loan. Be prepared for this when comparing as you may be misled into thinking that one is offering you the best deal, when it is not. The reason the rates may be different could be if you have a poor credit record and the lender thinks that you are a risk. They will then offer you a higher interest rate because they want to make more money out of you initially in case you get to a stage of not being able to pay back the loan. It is therefore worth checking that your credit record is correct, which you can do for free online and making sure that you do what you can to make it as good as possible before applying for any loans. Then you are more likely to be able to take advantage of the better deals that are available out there.