Cheap Loans

If you’re looking for a loan, chances are you will find plenty of lenders willing to take your custom.  There are many free to access loans out there that you may consider just taking because they are relatively easy to find, however, there are certain people who will want the best deal possible, and so they will search around for ‘cheap’ or low interest loans. So here we discuss how to get the best cheap loans and what the cheapest options are for each type of loan that you can get online in the UK.

A cheap loan is classed as one that offers you the best terms and the lowest interest rate possible, however they don’t just fall into your lap.  Cheap loans need to be searched for, and may take longer to source than other options.  It is also worth noting from the start here that cheap or cheaper loans are usually in the form of what are more commonly known as ‘unsecured loans’ or ‘personal loans’, however we will look at both those and other types of loan, and also which loans are the cheapest in each bracket at the current time (correct as of 4th June 2016).

So, onto some of the most common types of loan, along with the cheapest current option in each:

Secured Loans

  • A secured loan is named so because it allows you to borrow money against your property. Taking a secured loan means you have promised that if you cannot pay the money back for any reason, then your property will be used to account for it (property can include such things as your home, or your vehicles).
    You will find that, in most circumstances, secured loans are offered to homeowners that want to ‘loan’ large amounts of money (usually ranging from around £15,000 up to and past £250,000).
  • Being able to take a secured loan from a lender doesn’t depend on your credit rating at all. This is because you are using your property to guarantee your loan, so whether you have the best credit rating around, or you have a poor credit rating that usually stops you from obtaining credit of any time, a secured loan is always available to you (on the basis you have the property to guarantee it against).
  • Your circumstances will help to determine the amount of money you can borrow, and over what term you can repay, however one of the biggest indicators to assist with these types of decision is the amount of equity in your property at the time.
  • Another name for secured loans you may come across is ‘second mortgages’. Don’t let this confuse you, as it is totally separate from a mortgage you have on your house, and it doesn’t affect them in any way.
  • As a secured loan is not linked to your mortgage in any way whatsoever, you do have the flexibility to structure the loan in the way you want, deciding over how long you want it, how much you want, and how much you want to pay back.
  • Cheapest Available to All Loan (based on borrowing £20,000 over 7 years) – Precise Mortgages – Headline APR 4.5% – Total Credit Repayable – £23,313.36 = £277.54 per month

Bridging Loans

  • A bridging loan is a type of finance you may consider using if you need large amounts of money for a short term period. For example, if you are waiting on longer-term funding to come through and need money in the interim, this type of loan would be ideal for you.
  • As long as you can show that the money you want to borrow you can pay back, there is no cap to the amount you want to borrow (the only cap being what you actually have to be able to afford to pay back).
  • Bridging loans are paid out quickly, and as they are short-term options only, they are expected to be paid back quickly.
  • These types of loan have higher interest rates and shorter repayment schedules. The reason for the higher interest rates is that it will cover the lender if the finance you are waiting for doesn’t materialise quickly, if at all.
  • You can find bridging loans available from mortgage brokers and mortgage / financial advisors.
  • Cheapest Available to All Loan – Precise Mortgages – Maximum LTV 1st Charge of 75% and 2nd Charge of 70% – Loan Term is between 1 and 18 months – Loan amount from £50,000 upwards – Monthly Interest rate ranges from 0.59% through to 1.25%

Unsecured Loans – Usually the cheapest

  • Unsecured loans are also known as personal loans.
  • Your credit rating will affect your ability to obtain one. If you have a poor credit rating then you will more than likely be rejected, however, as long as your credit score is reasonable then you can apply for this kind of loan.
  • No security is needed for you to take an unsecured loan, so you don’t have to be a homeowner to apply.
  • Typical amounts that lenders will give on an unsecured loan range from between £1,000 and £25,000.
  • Repayment terms on a personal loan usually range from between one and five years at a fixed rate of interest. One point to note on this kind of loan is that the shorter the period you borrow over, the less interest you will pay, but, this then means your repayments will be slightly higher, so ensure that you can budget for these before committing.
  • Unsecured loans are typically more widely available and they can be applied for both online and face to face, according to your preferences. Some personal details will be required using either method.
  • Cheapest Available to All Loan (based on borrowing £20,000 over 7 years) – Sainsbury’s Personal Loan – 3.9% APR – Total Repayable is £22,833.72 = £271.83 per month.

Payday Loans

  • Payday Loans are available through multiple lenders and avenues across the country.
  • Typically, a payday loan will range up to £500 per loan.
  • They are named so as they are expected to be paid back within a very short amount of time (one month usually, two on rare occasions), usually on your next ‘payday’.
  • There are no real restrictions of the amount of APR a payday loan lender can charge, so in some instances you will find APR in excess of over 1000%.
  • On average, a payday loan will cost you around £25 per £100 borrowed.
  • Although these types of loans are usually associated with people who are in desperate need, you still need a reasonable credit score to obtain one. If you have a poor credit rating, you stand a chance of being rejected.
  • Cheapest Payday Loan (based on the term lowest relating to amount repaid on borrowing £1000) – Lending Stream Credit Line – Available amounts from £200 to £3000 – Repayment on £1000 = £1,055.80 over 31 days – No minimum or maximum terms – Late Fees = £12

Concessional Loans

  • Concessional Loans, also known as ‘soft loans’, are granted to people on terms that are more generous than your usual market loans. The more generous aspect of these loans is provided by either enhanced grace periods and / or interest rates that are below what you would usually expect on standard types of loan.
  • These types of loan you would usually find as a potential employee benefit for employees working in a lending institution of some kind.
  • Usually used by government and government type agencies to fund projects that they deem worthwhile.
  • No up to date information at present.

FACTS ABOUT LOANS

  • To apply for any loan within the UK, you must meet the following requirements:
  1. You must be over 18
  2. Be a resident of the UK
  3. Receive a regular income
  4. You will also require a good credit record – this is a score that banks use to assess your suitability for loans and to see whether you can pay the money back

PAYING BACK THE MONEY YOU BORROW

  • When you borrow money, you will have to agree when you are going to be paying it back and at what interest rate.
  • Interest rates differ from loan to loan, and can make paying a loan back quite difficult, quite quickly.

WHERE TO GET A LOAN

There are lots of different options when it comes down to where to get a loan, and some of the most common are:

  • Banks and building societies – Most high-street banks and building societies offer loans and one of the great things about them is that you don’t have to be a customer to obtain them. On the other hand, if you are a customer of the bank or building society, you will potentially get a better offer from them as they will run customer only deals.
  • Credit Unions – Credit Unions are small organisations, and can usually be found in community to community. If you become a member of the organisation then you will have the ability to apply for a loan, which comes from the community.  Credit Unions are also a great place to store any built – up savings.
  • Comparison Sites – Sites like https://www.lendingexpert.co.uk/loans are great for finding cheap deals.
  • Loan Companies – Usually associated with ‘payday’ loans. These types of companies usually specialise with the smaller kind of loans (e.g. payday) which require paying back in a shorter duration than other types of loan.  These types of loan usually have extremely high interest rates which can range from anything around 800% through to 4000% APR.
  • Loan Sharks – PLEASE NOTE THAT LOANSHARKS ARE ILLEGAL. Loan sharks are unregulated and are not able to be checked upon to ensure that they are being fair.  Loan sharks are usually from around your local area, and on first meeting(s) can see pretty genuine and helpful, however they often turn very threatening and aggressive as soon as you renege on any agreement you had with them.  A loan shark will charge extremely high interest rates, and will use the power of threats to force your hand if you miss a payment.  Another tell – tale sign that you are dealing with a loan shark is that they will not (usually) offer you anything along the lines of terms and conditions, interest rates, and / or receipts.

WHY IS IT BENEFICIAL TO HAVE A CHEAP LOAN?

Having a cheap loan means that in more cases than not you will have a longer repayment length, however they are beneficial to you in a number of ways, some of which are listed below:

  • Financially it allows you to pay back less per month than if you take them over a shorter period, thus theoretically saving you a little bit extra each month to make yourself a little more comfortable.
  • As the interest rates are cheaper it can allow you to borrow more than what you had originally thought you could afford to pay back on.

SCENARIO

Lender X takes out a loan via a bank that they have no affiliation to whatsoever.  They saw an advert on TV and have seen advertisements in the high street regarding the loans they offer and have gone with it as it seems to be a good deal.  They borrow an amount of £15,000 over a period of 7 years.  With the interest rate agreed and the repayment schedule set for 7 years, it is worked out that Lender X has to pay back £270.23 per month over the duration of his loan.

On the other hand, Lender Y has seen lots of adverts on the TV, on the internet, and in the high street.  Lender Y doesn’t just jump straight in with the first loan they see though because they act smart and do a little bit of research online to find out exactly what the best deal for them is.  They scout around and use a comparison site to give them a multitude of results to search through and eventually find the cheapest loan for them, via a provider that is relatively unknown to a lot of the general public.  Lender Y agrees an interest rate and a repayment schedule with the lender and ends up borrowing the same amount as Lender X (£15,000) over the same period (7 years), but amazingly thanks to his endeavours in searching for the correct deal he will only pay back £200.57 per month, making a saving each month of just under £70.00 in comparison.

The moral of the story here is be smart, search around, and make sure you really are getting the best deal for yourself instead of jumping straight into the first or second deal you see.  The results could be surprising and much more beneficial for you than you have ever imagined.