Are personal loans the cheapest method of borrowing? Well...sometimes is the best answer, personal loans can be a cheap and effective way to access funding but lets examine the alternatives. - using lifetime or 0% balance transfers on credit cards if you have several cards, or your credit can handle obtaining additional cards, and you are looking to borrow short to medium term, say 2-5 years, then why not take advantage of all those balance transfer offers you probably already recieve via junk mail almost daily! For example if you have 5000 of available credit on an existing card simply write a cheque on the card for 5000 ( or maximum available under card terms and conditions) deposit into your bank account and then transfer debt on existing card to a new card at 0% interest. Note - 0% APR is a pretty good rate not beaten by any personal loan offers no matter how cheap!
- Do you have access to any other borrowing already? Many nowadays have a flexible mortgage, or at least a mortgage with some amount of flexibility built in, in terms of repayments and further borrowing. Are the rates better with your existing mortgage company for the further borrowing required, or, if you have not remortgaged in last 5 years could you save money on existing mortgage AND include further borrowing in a remortgage deal? It is worth crunching some numbers in this situation, a few hours spent investigating the remortgage options can save thousands of pounds over next few years?
Ok, a personal loan is the best/only option for me, what should I look out for? Firstly, do a bit of research before calling or applying online, be forearmed with repayment figures both with and without the optional insurance for the advertised rates. It is all to easy to find cheapest loan rate available then end up paying through the nose for insurance as this is subtly added to almost all quotes via telephone or online, remember insurance is optional and can be arranged by many companies, once again shop around for best rates just like you did for the loan - it is a seperate product afer all! Secondly beware of the "typical rates" scam, typical rate means the rate that most people pay, not the rate you will be offered! make sure you are aware of the exact APR before committing to any agreement, it may well be that another lender with a higher "typical rate" may in fact offer you as an individual the best ACTUAL rate. Lastly checkout the rate tiers - by this I mean that many lender offer reducing rates of interest on higher amounts, for example - 1000-5000, 11.7%
- 5001-10000, 9.9%
- 10001-25000, 7.9%
In the above example if you were looking to borrow 5000 it would make sound financial sense to borrow 5001 at a much cheaper rate! |
