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Cheap Loan

The way we'd all like to borrow money!

The cheapest loan is from friends and family! But if you must borrow, there are a wider range of places to go, and a broader range of products than ever before. Judge a cheap loan by the APR of the product, and also be sure to see if any benefits associated with the product make it more attractive. Ask about redemption penalties too- they could cost you dearly if you pay the loan off early.

Every lender will tell you they can offer you a cheap loan. There are, as always, lots of catches. Do they mean cheap in terms of monthly payments? That might just mean they'll spread the loan over a longer period than their competitors. You'll pay far more, but it'll feel like less. Perhaps they offer a low "typical" rate. That might not be the rate you pay! Most lenders judge each case individually, and you may not be offered the best possible rate. The best rates anyway are reserved for larger sums, so if you need less than £5,000 it's highly unlikely you'll get the best deal.

So after all that moaning, what does count as a cheap loan? Well, it changes month on month. Ten years ago, an interest rate of 10% was very acceptable indeed- now it's high. In general as a rule of thumb, below 7.8% is a very good rate (below 6% is usually only available to secured loan applicants with their existing mortgage provider). 7.9%-9.9% is an average rate, and above that is on the high side.

All that said, sometimes it's worth sacrificing a few percentage points on a cheap loan if there are other benefits attached to a more expensive one. For example, those loans offering a payment holiday might be most useful (after all- that's effectively three months interest free credit!). Always tot up the benefits in financial terms before you buy- because a cheap loan on paper might be more expensive if there are no additional benefits.