There are a lot of things that we need to think about when we are applying for loans. This can be everything from whether our friends would recommend them to you to whether you have heard of the lender. Obviously. some things are more important than others. This is very personal and we will find that if we talk to people about the things that would be the most important to them, they will vary a lot. However, most people will be concerned about the cost of the loan.
General costs of loans
All loans will have a cost unless you are really lucky and find one with 0% interest but they are extremely rare. Even those loans might have some fees anyway. Loans tend to charge in different ways and it is good to have an understanding of these.
The main cost that we will know about it’s the interest rate. The lender will charge a certain interest rate on the amount that you have borrowed and this will determine what they charge. Sometimes the rate is the only thing that is charged and sometimes there are additional charges as well. Interest rate will vary between different types of loans and different lenders.
Some loans will have a fixed rate of interest. This will mean that the interest rate will remain the same, either for a certain time period (perhaps a few years in the case of a mortgage) or for the full term of the loan. The advantages of this are that you will always know exactly what you will need to repay. Some loans have a variable rate. This is an interest rate which can change. There is a special tracker rate which will change if the base rate changes, but other variable rates can change at any time, although they often follow base rate changes too. The base rate is the rate that the Bank of England lend at and they adjust it to stimulate or suppress the economy in order to control inflation (the increase in prices).
As well as interest, loans may have additional fees as well. These could include administration fees, early repayment fees, late payment fees and all sorts of other things. Some of these fees, such as the administration charges will have to be paid and some, such as late payment fees are charges which only come in, in certain circumstances, such as missing a repayment. It is worth noting that an AER is an interest rate which allows for the compulsory fees in it and so if you want to compare loans using interest rates then this is the rate to use. However, it can be better to find out what the costs are in monetary terms (you can find out form the lender) and this will not only help you to compare them like for like but you will see the cost and it will help you to decide whether you feel that it is worth it or not.
Costs of online loans
Online loans will vary in cost depending on the lender that you choose as well as the amount of money you need to borrow and how long you need it for. Therefore, it is a good idea to make sure that you calculate the costs of different lenders so that you can compare them. Whether you feel they are expensive or not, will depend on whether you feel that they offer good value for money.
The online lenders will charge interest and some fees too and because they are taking on a high risk, they may seem expensive. However, it is up to you to decide whether you think they offer good value for money. The best thing to do is to consider all of your options and compare the costs of them and you will be able to decide then which will be the best for you. It might be that you have found cheaper types of loans and you will need to decide whether you think they will suit you. You need to think about other things rather than just the cost though. Consider whether you are prepared to pay more because the loan suits your needs better. This is where it is well worth thinking about what your requirements are and then matching those up with different types of loans to see which will fit your needs the closest. Then you will be able to choose the type of loan which will provide you with the best value for money. Sometimes it is well worth paying a bit more for something If it can provide you with a better service.
So, even if something costs more money, then it does not mean that you should ignore it. You may find that online loans are more expensive than some other types of borrowing but if you have a poor credit record it might mean that you cannot easily borrow money in any other way. You may want money really quickly and find that an online loan is the only way to get it fast enough.