Low cost loans | How to find low rate loans

What are low cost loans?

Low cost loans are a way of borrowing money that you repay over a set time period through regular monthly instalments. The lowest-cost loans come in many forms.

You need to think about the interest rate, known as the Annual Percentage Rate (APR), which usually includes additional fees and charges which may affect the cost of the loan.

The key to finding the best low cost loan is to compare deals from different providers and understand how low cost loans work. Read on for our independent guide to finding cheap loans.

Low cost loans

Compare all sorts of low cost loans from personal loans to debt consolidation loans.

How do low interest loans work?

There are two types of personal loan which may be available to you – an unsecured loan or a secured loan. 

Secured loan

When you take out a secured loan, you are borrowing money that is secured against your assets, usually your home. Secured loans are often cheaper than other types of loan, but you could lose the asset you put up collateral (for instance your home) if you cannot keep up the repayments. 

To find the cheapest secured loans, you need to look for the lowest Annual Percentage Rate (APR) you can find. Often, you’ll find the best rates when you secure the loan against your property, which is also sometimes known as a homeowner loan.

Unsecured loan

Unsecured loans are also known as personal loans. They are not attached to your property, such as your home. You will need to have a good credit rating based on your personal financial circumstances to get the best rates, to offer reassurance to lenders of your ability to pay the loan back.

If your credit rating is on the low side, or you have had problems with credit in the past, you may be able to apply for a credit builder loan or a credit builder credit card to help boost your credit rating.

If you are looking for a low cost loan that you are planning to pay back over the short to medium term, then an unsecured personal loan might be your best option.

You can find out more out how loans work with our Guide to Personal Loans.

How do I compare low cost loans?

You can use our comparison tool to compare different low cost loans and find the best loan for you. First, compare the APR, or Annual Percentage Rate. The APR is the interest rate you are charged on your personal loan. On the whole, choosing a low APR is the easiest way to save money on your repayments.

You can find out more about how APR works with our guide: What is Annual Percentage Rate or APR?

But how do you know you are making the right choice? New loans are introduced all the time and lenders are always changing their rates, so the only way to tell which low cost loan is the cheapest is to compare them all.

What are fixed and variable rate low cost loans?

If you are looking for a low cost loan and you want to have the security of knowing that you monthly payments are not going to increase, you can opt for a fixed rate loan. This gives you more security as you know what your loan commitment will be, even against the background of a changing financial climate.

A variable rate loan follows another financial indicator – most often bank interest rates – so may go up if the Bank of England base rate rises. Of course, it may also go down.

How much does a low cost loan cost?

Most loans will come with some common costs, which may include loan arrangement fees, interest charges, and fees if you want to end your loan early to pay it off before the end of the set repayment terms.

Loan arrangement fees: Some lenders charge a loan arrangement fee when you take out your loan, in much the same way that a credit card provider can charge an annual fee for owning the card. While this fee can bring down your interest rate, it will add to the overall cost, so it may be a better option to take out a loan with a slightly higher rate and no fee. When you are working out the overall cost of the loan, you need to factor in both the cost of the interest and any loan arrangement fees. The good news is, most APRs include arrangement fees, making comparisons much easier.

Early repayment fees: Some lenders charge if you choose to repay your loan early. Typically, this will cost around one- to two-months’ worth of interest. This is because the lender will want to protect itself from losing the money it would have gained in interest over the longer period.

If you want to be able to pay off your loan early then check which loans apply a charge and which don't. Not all the best loans have an early repayment loan so it pays to shop around properly.

You can find out more with our guide to Early Repayment charges and Redemption fees.

What is the best way to choose a low cost loan?

The best low cost loan is one that has a low, fixed APR, no arrangement fee and no early repayment fee. Of course, the perfect loan is hard to find, so you need to shop around carefully. You may have to decide which factor is most important to you, for instance a slightly higher rate but no ERC because you want the option to pay a loan off early.

It’s important to know that not everyone is offered the headline APR on a lender’s website or adverts. In fact, providers only need to offer this interest rate to 51% of successful applicants. If your credit rating has been damaged though or if you do not have much of a financial history for the lender to compare, you may only be offered loans with higher APR interest rates.

It is not recommended to apply for lots of low cost loans all at once – the applications will show up on your credit record and lenders may think that you’re desperate for money or a high risk. This may mean you are rejected and your credit score will suffer.

You can see your credit report online for more information, read our background guide to credit reports. If your credit rating is good, you can usually take your pick from the low cost loans available.

How does the Uswitch lowest cost loan comparison work?

Our loans comparison service will search through all these loans for you, giving you a set of results consisting of the best low cost loans for you - just answer a few questions about the type of loan you’re after to get started.

Low cost loans

Compare all sorts of low cost loans from personal loans to debt consolidation loans

Compare all sorts of low cost loans from personal loans to debt consolidation loans

Read more …

• About unsecured loans - Uswitch price comparison

• Choosing a secure loan with Uswitch.com

• Unsecured Personal Loans Calculator and Comparisons