A low interest rate loan can be the ideal way of borrowing money that may be required for a big purchase, such as buying a new car, covering the cost of home repairs and renovations, or simply to pay off existing debts.
The market for loans offering low interest rates today is fairly large and competitive. Borrowers who are looking to take out a loan of between £7,500 and £14,999 are now able to apply for the cheapest interest rates available since late 2008.
This may make choosing between available offers tricky. Aside from conducting your own thorough research on the types of low interest loans available before deciding one, a good starting point would be to realistically assess the type of borrower you are.
For someone with good credit rating, there are a range of available options.
There are several online lenders who offer low interest rate loans and these can make for a more financially sound loan agreement, since online lenders have fewer overall overhead costs and can therefore offer better interest rates to borrowers.
However, most high street banks and building societies also offer low interest rate loans. Familiarity with these institutions and face to face dealings may make the financial transactions more comfortable for some, although it may be more expensive to approach lenders directly rather than to check on comparison websites and, for example, find low interest loans with moneysupermarket.
More importantly, looking for low interest loans at one’s own primary bank may make financial sense since it is this institution which will be most familiar and knowledgeable about your credit history, as well as your money management and spending record.
For those with good credit histories, the primary bank often offers the most competitive interest rates on loans.
Even with a quote from your primary bank, it is advisable to check with other local financial institutions such as banks and credit unions, to check if these lenders are able to offer you a more competitive rate on loans. While it may be possible to ask for a lower rate, loans quotes are in general difficult to negotiate.
With either online or high street lenders, the key thing is to shop around and compare to choose loans that offer the lowest interest rates and overall costs.
For those considering purchasing a new car, another option would be to take out a loan with car dealerships.
Many dealerships have their own methods of loans for car purchases. These loans are often personalized from one customer to the next and may be based on, amongst other considerations, your credit history, financial stability, a stable source of income, repayment history and general affordability.
However, most car dealerships do charge interest rates on loans. Unless the purchase is made during a promotion where loans are offered interest free, this is to be expected. The key to being a savvy buyer in this case is always to get the lowest interest rate possible.
For those with credit ratings that are not as good, there are alternatives and you may want to weigh your options for a debt consolidation loan. Debt consolidation loans can help to better your credit rating over time whilst cutting your finances down to manageable size and reducing interest payments. When your credit rating has been bettered, you can then apply for low interest rate loans and repay off any debts you may have.
For those who wish to borrow a smaller but nonetheless substantial amount of around £3,000 or less, it may be cheaper to make the purchase on a credit card with low interest rates. Interest rates on personal loans are often higher, the smaller the amount borrowed.
There are some credit cards which offer interest free periods, meaning that card holders may not have to pay any interest on purchases made on credit, as long as the debt is repaid within the interest free period.
Louise is a financial author in the UK, currently working with Moneysupermarket.com, a leading price comparison site. She spends her free time running a number of non-finance websites and creating infographics and bespoke content for a large range of sites. Follow her on Twitter @louisetillotson
- The Hidden Extras of a Loan (2009tax.org)