Getting the best loan rate is probably going to be high on your list of things to find out before securing your loan. It is less about from whom you borrow and the length of your term because the amount you are looking to borrow will set the rate level;
Comparing loans
Whether you are considering a personal loans or debt consolidation loan, compare what is on offer.
You might well expect to assume, if you borrow less, you will pay back at a lower rate of interest; this is often not the case.
A personal loan of £4,500 could set you back more on pay back interest than if you borrowed more than £5000.
Why do you pay a higher interest rate for a smaller loan?
In general it’s about risk; the APR that a lender stipulates for the loan reflects the risk the company feels it is taking in giving the loan and securing the money back.
If you borrow a smaller sum of money, the borrower may see this as a sign you don’t have enough in your personal funds to fall back on, if times get hard; it may make you look less responsible, too, with your personal finances.
Comparing loans
The aforementioned loan to risk factor is generally the reason payday loans for small amounts carry large APRs. Contrast this to mortgage loans which usually carry a low interest rate to high loan amount.
How do you get the best loan rate?
It’s a good idea to check what APRs are available for varying loan amounts when you want to take out a loan. You may be surprised that by borrowing more, the interest rate lowers.
Borrowing more than you need may make you uncertain but you don’t have to spend it all; you can put the excess into a savings account; alternatively, look on the terms to see if there is a penalty to pay the excess back straight away.
If you are looking to borrow only a small amount of money, read up on small loans to find out what your options are.
To best compare loans, shop around and discover for yourself it isn’t just about the rate. It is best to compare all sorts of loans from personal loans to debt consolidation loans and know beforehand what to look out for.
