How to keep the cost down when borrowing money
When taking out a loan, everyone wants to get the best possible deal. This will depend on factors such as how much you wish to borrow and how long it will take to repay. When securing a loan agreement, it is a good idea to shop around and consider ways to keep the cost down.
Long-term loans
Choosing the right borrowing method to suit your loan term is an effective way to keep costs down; for example, secured loans often have lower interest rates when borrowing large amounts than unsecured loans. With a secured loan, you put an asset – such as your house – up as collateral. The drawback is that if you cannot repay the loan, you might lose your asset.
Mortgages are the most common form of borrowing when buying a home. If your house has gained equity, you may be able to extend your mortgage to borrow more. These rates tend to be lower than a personal loan; however, with a long repayment term, you may end up paying back more.
Loan agreements can be complicated; therefore, it can be a good idea to obtain legal advice from a firm with experience in this area, such as Parachute Law, before signing.
Short-term loans
Personal loans allow you to borrow up to £50,000 with a term of between one and ten years. To be eligible for a personal loan, you will need a good credit rating. MoneySavingExpert has some great tips to improve your creditworthiness and obtain the best rates.
0% purchases credit cards are one of the best ways to keep costs down. There will be no interest to pay during the fixed period, although there may be an annual fee. Make sure you clear the balance before the end of the fixed period, as the interest rate can then become high.
A bank overdraft is usually the most expensive form of short-term loan; however, it is worth checking your bank’s conditions, as some may offer an interest-free buffer in the short term.
