Managing your personal finances isn’t always plain sailing. Unexpected expenses like car repairs or medical bills often catch us by surprise and leave our budgets compromised.
Equally, larger and less frequent purchases like holidays can be difficult to cover while managing monthly living expenses. Personal loans are a great way to ease the pressure in these types of circumstances, enabling us to spread the cost of a purchase and help our cash flow.
Low interest loans are of course preferable, and personal loans are generally offered at a cheaper rate when compared with other finance solutions like credit cards. That said, there are still many to choose from, and in this guide we’ll outline everything you need to know to get you started with your loan search.
How is the interest rate for a loan calculated?
The interest for a loan is calculated as a percentage of the amount you borrow. Ultimately it’s what the lender will charge you on top of the repayments that you make each month (the cost of borrowing).
It’s often expressed as the APR which stands for 'annual percentage rate'.
You'll usually see a loan advertised with a representative APR. By doing this the lender is required to offer this rate to 51% of applicants, however it does not mean that everyone will be able to obtain this rate. The rate available to you will depend largely on your personal circumstances, as well as your credit history.
Most personal loans are offered with a fixed rate, meaning the rate is unchanged over the agreed borrowing period. Some loans are also offered with a variable rate deal. In these instances the lender can change the rate at their discretion, however normally they will allow the base rate set by the Bank of England to dictate this.
What is considered a low rate for a loan?
What a low rate is will depend on your personal circumstances, and for that reason there isn’t an answer that fits everybody. Typically a lower rate will fall in the region of 2-12% but this will vary based on a number of factors relating to your creditworthiness.
Some (not all) of these factors include:
Employment Status - Whether you're employed or unemployed can have a huge impact on your perceived crediworthiness to lenders. If you are currently not in employment then it will be difficult finding a low rate (and possibly a loan all together).
Credit Score - Your credit score is a grading out of 850 that evaluates your creditworthiness. If you're not sure what your credit score is then it might be worth using an online service to determine this before you start looking.
Income to Debt Ratio - If you already have a debt arrangement that you are stuggling to keep up with then you almost definitley shouldn't take on more debt. If however your income permits you to repay your loan commitments whilst comfortably covering your living exepenses your search will be easier.
Credit History - This is linked to your credit score but if you have a proven record of repaying loans or credit card bills on time then this can work in your favour. If you have defaulted on a loan in the past then this will decrease the likelihood of you being accepted.
How can I find the best loan rate?
When looking for a personal loan you shouldn't accept the first offer you recieve from your bank or building society. It's good to shop around and comparison websites like ours make this job a lot easier.
At Low Rate Loans we search our panel of over 30 lenders to find you the best available rate. It's a great way to compare APRs and get your loan search underway without any obligation and without affecting your credit score. Head to our apply page and start your loan search today!