Is it Better to go for a High Interest Rate if it is With a Well-Known Lender?

When you are picking a lender it can often be tempting to go with a name that you know. This is why the main high street banks will often be able to charge a higher interest rate than some of the less well-known lenders. People like to go with who they know and may even just stay loyal to one bank of building society that they already use. It can be scary choosing a lender that you have not heard of or that you know very little about but it could mean that you will miss out on a better rate. There are checks that you can do though to find out more about unknown lenders first.

  • Ask people you know asking people that you know to give you information can be really useful. They will have had experiences that you have not and so you have an opportunity to learn form them. If they have had an experience of using a particular lender that you are considering, then you can find out more about their experience and whether they would recommend them to you or not. This is really valuable information as they will have no reason to be biased and if they are someone that cares about you, they will try to give you the best advice to help you. Even if you can only find out about who to avoid, this can be useful as you will know what to look out for in a bad lender.
  • Look at online reviews – if you have no one to ask or do not feel comfortable talking about this sort of thing then you will have to find a different source of information. If you dig about online you might fid some information or reviews of the lender. These can be varied and there is no way of knowing if they are impartial or correct unless you can find them on a site that you really trust. It is worth remembering that reviewers might gain from commission on leads if they recommend certain lenders so they may be more inclined to recommend those. Try to find sites that seem impartial and do not have leads and links to lenders sites or ones where you trust the reviewer.
  • Check out their website – you can get a lot of information about a lender from looking at their website. You should be able to get a feel for the company and you might be able to find out about how they were set up and things like this. You may also gain by looking them up on websites like Wikipedia which will have information about how they were formed and when as well as information about anything notable that they have done or been involved in.
  • Contact them directly – if you have any questions or concerns then contacting the lender directly can be useful. Not only will you be able to get your question answered but you will also be able to find out what their customer service is like. You will get a feel for how polite and friendly they are, how quick they are to answer and how well they answer your query. It can be very enlightening.

As you can see there are a lot more things that you should be concerned with when picking a lender. It is therefore no surprise that many people will just pay more to stick with one that they trust. However, if you do some research, which may not even take that long, you will be able to find out whether you might want to use any of the cheaper lenders that are available. Of course, as well as finding out about them you need to look at their costs more closely. Just comparing on interest rate, unless you use the AER means that you may not be comparing like for like. Some lenders will add on other fees as well, such as administration fees and so the loan could be more expensive than it seems. You will also need to take into account how many repayments there are, as the longer the length of the loan, the more expensive it is likely to be. So, it is wise to calculate the actual cost of the loan so that you can compare the price properly. You might also want to see how high any fees they might charge for things like late repayment are. Although you may not expect to make a late repayment it is still useful knowing how much they charge for this just in case. If one is very much higher than another then you might decide that you do not want to use them, particularly if their main costs are not that much different to other lenders. Also knowing how expensive it could be if you do miss a repayment could help you to be more motivated to make your repayments on time.

Does the Best Loan Have the Lowest Interest Rate?

When picking between loans it can be easy to think that the one with the lowest interest rate will be the best option. This is probably because lenders will use their interest rates as a way of marketing their loans, claiming that good rates are the best. You will also find that comparison websites will compare based on interest rates and so it can make people think that is the only important thing to worry about. However, it is important to understand how loan costs work and also other factors that should be an influence in your decision.

Understanding loan costs
You may find that when you look at loans there are two interest rates that are given and they are quite different. This can be confusing. It is worth noting that it is the AER which gives you a true comparative value as it includes any additional costs to the actual interest that you are charged. Comparing loans like for like can be tricky because of this and it can be best to try to work it out for yourself rather than relying on comparing interest rates alone. What you need to know is how much you will repay in total and you should be able to work this out if you know what your repayments will be and how many repayments there will be. If you do not have regular repayments then you will have a trickier calculation to do. This is because loans such as credit cards or overdrafts will have their cost determined by how long it takes you to repay. You will need to try to work this out so that you can calculate the costs. If you have trouble with calculating any of the costs then you should be able to contact the customer service department of the lender and ask them to calculate it for you.

It may seem like a lot of work but this is important for two reasons. Firstly, you will be able to compare costs of the loans allowing for all of the factors such as one-off fees and things like this but also it will help you to see how much you will be expected to repay each month. It is really important to be aware of how much you will need to repay and then you will be able to know whether you will be able to afford this. It is so important to be aware of this as if repayments are too high then this can have a huge impact on you. It may mean that you have a constant struggle to find the money to pay them or even that you have to give up paying for other essentials to pay them.

Considering Other Factors
There are other things that you also need to think about when comparing loans. You should have found out how many repayments you will be expected to make. Think about whether you will be happy repaying your loan over that period of time. You may find it quite a burden to have a loan lasting for a long time, but alternatively you may feel that you will be happy repaying over a long period if it means that you will find the payments easier to make.

Other factors that borrowers may consider involve the specific lender. They may feel that it is important for them to use a lender that they can trust. This may mean they want one that they have heard of or that they know other people have used successfully. It may be more to do with online reviews being good or customer service being outstanding. It is worth thinking about whether any of these things are important to you. Whether you feel that they would make a big difference to you if you are picking between them. It may not feel that it will make a great deal of difference but it really could. Think about the difference between a lender that is happy and willing to answer questions and queries quickly and correctly compared to one that takes a long time to give an inadequate answer. Also consider the value in using one that has good reviews and comes recommended form people you know compared with one you know nothing about. You will be able to feel more confident that you will have a positive experience if you use one that you feel you can trust.

So, the lowest interest rate does not necessarily indicate that the loan will be the best. Not only does it not even necessarily mean that the loan will be the cheapest but you need to consider whether you can afford the repayments and what the lender is like as well. It is worth considering these things because they can make a difference to your experience as a borrower.