Finding a cheap loan is simple if you know what to look for. There are a few tips to keep in mind during your loan search to make sure you find the cheapest loan available for your budget and requirements.
Borrow only what you need
When applying for a loan, don’t be tempted to borrow more than you need. You might find that you are eligible to borrow a lot more than you want, but borrowing more than you need to will result in you repaying more interest and a higher total cost.
Borrow over the shortest term you can afford
The longer the loan term, the more affordable the monthly repayments will be. However there is a big difference between a loan being affordable, and a loan being cheap. The longer the loan term you opt for, the more you will repay for the loan overall. This is because the longer the term, the more interest you will repay – meaning the loan becomes more expensive. Try to borrow over the shortest term you can afford in order to keep the cost low; this means your monthly repayments will be higher. While you don’t want to commit to monthly repayments that you can’t afford, you want to find a happy medium between loan cost and affordability.
Example: Borrowing £5,000 at APR 7.8%
Loan term 3 years 4 years 5 years
Monthly repayment £155.61 £120.97 £100.27
Total loan cost £5,601 £5,806.56 £6,016.20
Check the APR
Finding the lowest APR is the simplest way to find the cheapest loan when comparing like-for-like products. Shop around and use a free online loan comparison tool to find the cheapest products. However, keep in mind that only applicants with impeccable credit rates will be accepted for the lowest APRs advertised. If your credit rating is less than perfect avoid the rejection spiral by speaking to an independent expert for advice on the products you are most likely to be accepted for before applying.
Check the total loan cost
The total loan cost is the total amount you will repay on the loan: Principle amount + interest = total loan cost Comparing loan products by their total loan cost gives the most accurate reflection of which product is the cheapest. The cheapest loan product is the one with the lowest total loan cost.
Don’t pay for what you don’t need
When comparing loan products make sure you aren’t paying for things that you don’t need. Lots of lenders offer payment breaks, which may seem like a good idea, but a payment break will only make the loan more expensive, as it simply increases the loan term. If you don’t need to take a payment break, don’t. The same applies to other ‘benefits’ you may be offered on certain products, such as cashback. Make sure you know exactly what you need from a loan, and don’t be tempted by offers you don’t really require. Chances are they will end up costing you more in the long run.
Please note: this website, and the articles and information within it are based on journalistic research. It does not and should not be construed to constitute financial advice. Any information should be considered in regard to specific circumstances. All tips are followed at your own risk and should be followed up with your own research. For more please refer to our terms and conditions of use.