Typically, low cost loans are a form of loan that comes with long-term repayments offset by affordable monthly rates. This means that you typically get a loan that comes with an affordable Annual Percentage Rate (APR). Before taking on any loan, you need to closely evaluate the APR and the other associated costs. Many loans come with certain conditions and added charges; it is vital that you clearly understand this.
The best way to find reliable low cost loans is to compare the best providers. Often, this can mean looking for a particular kind of loan. For example, a loan specifically for buying a car or completing home improvements.
2. Secured and unsecured loans;
Typically, you have two options when choosing your loan type: secured and unsecured.
- A secured loan is typically borrowed against an asset, such as your home. They are cheaper because they have a clear asset there as collateral. However, if you cannot keep up payments, you risk losing your asset. The lower APR, longer repayment terms, and larger loan amounts make them attractive for those with assets.
- An unsecured loan, though, or a personal loan, is attached to you personally as opposed to a particular asset. These often require more serious credit checks, a strong financial history, and proof that you are capable of making payments. APR is typically higher, and the repayment terms as well as maximum loan rates will be determined by your personal financial history.
Naturally, the risk/benefit has to be weighed up in both situations. An unsecured loan means that you are free from risk of losing assets if you default. With fixed repayment plans and lower APRs compared to a credit card, they can be the best choice for most people. However, some unsecured loans come with early repayment fees, and your credit score can have a drastic impact on the rates you are offered.
If you are finding it hard to land an affordalbe unsecured loan, taking on a credit building loan or a credit building credit card can be a wise choice. These are small-scale loans designed entirely to make your credit rating improve over time.
3. Extra fees in low cost loans;
A common mistake for many people when taking on low cost loans, especially unsecured loans, is the added costs.
For example, you might need to pay a loan arrangement fee. This is a third party fee that is charged by some lenders for arranging the loan. This fee might help to reduce your interest rate, but it is yet another cost to think about. Always look at the APR and the loan arrangement fee.
Some loans also come with early repayment fees. This means that if you were to pay off the full balance before the agreed date that you pay a premium for doing so. This is to help the lender from losing out on the interest money they have anticipated receiving from your loan term.
4. Fixed and variable rate low cost loans;
Another element of choosing your ideal loan partner is the rates. You get two options: fixed rate and variable rate loans. Variable rates mean that the rates might be extremely cheap one month, but increasingly expensive the next. The monthly cost of your repayments shifts with the market, basically. By contrast, fixed rates mean you pay a flat balance per month.
This means that you might be paying more than you would with a variable rate in some months, but it avoids you having to worry about market problems forcing a skyrocketing in your low cost loan rates.
4. Comparing low cost loans;
The best way to evaluate one low cost loan against another is to look at the APR. Comparison tools for low cost loans can be useful, too, allowing you to look at the kind of rates you could be looking at for your chosen loan. The best thing to do, then, is to spend some time looking at available low cost loans and comparing the rates being offered. This can be time-consuming, but plays a role in helping you to land the best deal.