How Often Should I Compare Interest Rates?

We are often told that we should be comparing rates between different loans so that we can make sure that we do not pay more than necessary. This is sensible advice but you may wonder how often you should really be comparing as although switching is not always that hard, it still takes time and effort to do as well as taking time to do the research, so it is worth giving it some thought.

When you first take out a product

The most important time to compare the interest rates is when you first take out a product. You need to make sure that you are not paying more than necessary right form the beginning. It is wise to be careful though as getting the cheapest may not necessarily be the best thing to do. You will need to think about the other features of the loan as well. Firstly, make sure that you are comparing AER which is the interest rate that includes any costs as well, otherwise you will need to take any fees into account as well as the interest that you will pay. Also think about whether you are getting good value for money. There are lots of other factors that could be important such as whether the repayments are manageable, what the lender is like, how flexible the lender is and how good their customer service is.

After the fixed rate period

If you have a fixed rate period, then you will be tied in to that lender. Normally this will happen with a mortgage where you will have a certain amount of years where you will be on a fixed rate of interest. Once this period is ended you tend to move onto their variable rate and then you will also have the flexibility of moving to another lender. It can be wise at this point to see how their rates compare. You may wish to move to another fixed rate or you might be happy to stay on a variable rate. Fixed rates have the advantage of not going up when other rates rise and you know exactly how much you will need to pay each month. However, if the base rate goes down, then you will be stuck in a fixed rate that may be relatively expensive, so you may prefer the flexibility of the variable rate where there is a chance the rate may go down instead of up. Also fixed rate can tend to be dearer than variable rates, at least in the short-term.  You often get tied into a fixed rate and some people prefer the flexibility of being able to switch.

After base rate changes

If the base rate goes up or down, then lenders may also change their rates to reflect these changes. However, some may not put theirs down if the rates go down and others may put theirs up more than the base rate increases by if there is an increase. Although you might expect the lenders to follow the change in base rates, they do not necessarily do so. This means that it is important to make sure that you keep track of what is going on. Look at what other lenders are doing and compare it to yours in order to see whether what you are paying is still competitive.

Every year

It is probably to also check the rates regularly on a yearly basis. You will find that when you compare rates, they will be different in a year compared with the previous one. Even if the base rate has not changed, there will be some lenders that will have changed their rates and there is a chance that you will find one that will be cheaper than the one that you are with.

Possible problems

It is wise to be careful when switching between lenders. You may find that there is a charge if you switch from one lender to another. Do check with your current lender before you do anything. You should also look out for admin charges and other fees that you may have to pay up front to your new lender. Although you may find that it is still worth moving even with these fees, make sure that you find out if there are any and if so, how much they cost so that you can allow for them in your calculations. You may find that as you have to pay it as a lump sum, that you will have to take some time to save up first. It is also worth noting that all variable rates can change at any time so if you switch to a lender that is just a little cheaper, you may find that they will not stay cheaper for long and the move may have not been worthwhile. Consider how much money you want to save to make it worth moving. Most people would not move for a saving of £10 a year but if you could save this per month of even twice or three times, then perhaps you would think that it was worthwhile.

Is a Credit Card More Expensive than a Payday Loan?

There are many types of loans that we can choose from but if you want a relatively small amount of money then you may decide that you can get it either with a credit card or a payday loan. It is important to make the right choice as it can have a big impact on many things including how much the loan will cost you. There are very big differences between the two loan types and it is important to understand more about them so that you know which will suit you the best.

Credit Cards

Many people will be familiar with how a credit card works. You will apply for a card and then when it arrives you will be told how much you can spend on it. You will then be able to use it in most shops and for online purchases. After four to six weeks you will be sent a statement which will show how much you have spent on the cards and therefore how much you are expected to repay and when you need to pay it by. You will have repayment options, where you can repay the full amount that you spent on the card and pay no fees at all. You can repay just a small minimum amount which will include interest on the unpaid balance. Alternatively, you can pay a figure in between these two. The interest rates on a credit card can be fairly high compared to some other types of loan. They are popular for many reasons including the flexibility with repayments. With a credit card you can just choose to repay a very small amount and it means that you can spread the repayments over a very long period of time and therefore it is a lot easier to repay the debt. However, you will be paying interest all of the time that you owe money and this can be quite high. How much interest you end up paying will depend on how long you take to repay the card. This means that it can be hard to say how expensive the card will actually be. If you repay it all in full then it will be free and obviously cheaper but if you take the maximum time to repay it, then it could be more expensive than a payday loan.

Payday Loans

A payday loan can be arranged very quickly, sometimes within a few hours and you will get the money paid into your bank account. You will then have to set up a direct debit to repay the amount your borrowed, plus the costs, in full on your next payday. The loan does not hang around for long but you do have repay it all in one go which can be difficult for some people. There is no credit check for applicant which means that anyone can apply but this can mean that they are pricey because of the risk that the lender is taking. You also have to pay all the admin fees within that one lump sum payment; something which is normally spread out across many repayments and it can seem very expensive because of this. You can easily find out how much the payday loan will cost you before taking it out by using the calculator on the lender’s website. This is a good idea as it will allow you to see what is expected of you with regards to that lump sum repayment and you will be able to think hard about whether this is a good idea for you.

Costs

So as you can see it is not just the costs that are a factor when you are deciding between loans and it is not always that easy to work out what the costs will be. Even with a payday loan, although the costs are clear, if you struggle to repay it then the costs will be even higher and how much higher will depend on how long it takes you to clear the debt. It might be worth considering how well you will cope with repaying each of the different loans in order to decide which one will be the cheapest for you. If you know that if you have a credit card you will max it out and then only repay the minimum then it is likely that will be a very expensive option for you. However, if you feel your will struggle to make the payday loan repayment then this may rule out this option. In order to work it out, you may need to sit down with your bank statements and calculate how much money you normally have available and see what you can actually afford. You may be able to identify some ways to cut down your costs and that could help you to manage.

Is a Payday Loan Just too Expensive?

There are many people that feel that payday loans would just be too expensive and they just do not bother to consider them at all. This is not surprising as when you see advertisements for them they will put the AER figure and it will be a huge percentage. This can look too scary and so people will just reject them. Although the companies have to put the figure on the ads so that people are aware of the costs, the percentage does not tell the full story. It is therefore worth working out how much the costs really are, finding more about these loans and then deciding whether they are right for you.

Calculating the loan costs

It is good to calculate how much the loan will cost you in monetary terms. This makes a lot more sense than a percentage and it is surprisingly easy to do. If you go to the website of a payday lender, you will find a calculator. You can enter how much you wish to borrow and how long for and it will let you know how much you will need to repay. You can use this figure to compare with other lenders or you can take away the amount that you are borrowing to see how much in fees you are paying. If you do this on the websites of many different lenders you will be able to compare the loans and work out what the costs are and which one will be cheapest.

It may still seem like a lot of money but it is worth understanding why. All loans have administration fees that you may either pay upfront or have added into the costs and when the loan has lots of repayments this only adds a little to each. However, when a loan has just the one repayment, like a payday loan, then it is all added in to that and therefore makes it expensive.

Payday loans also have other features that can make them expensive. They can often be arranged at anytime meaning that there is staff available outside of normal office hours and they will need to be paid more highly for doing so.

Payday loans are also available to anyone regardless of their credit rating. They do no credit check and therefore take on a lot of risk when they lend money. There is an increased risk that the loans will not be repaid and therefore they charge more to protect themselves against these losses.

More about payday loans

Payday loans came about in order to help out those with a poor credit score that were unable to get money elsewhere, which is why they do no credit checks. They are also available to help those who need money in an emergency and therefore can be arranged very quickly. They tend to lend between a few hundred and a thousand pounds at a time and the money has to all be repaid in a lump sum on your payday. A direct debit is set up for the payment to make it easier for the borrower to remember and it is made on their payday to increase the chances of there being enough money available to repay it.

Being paid off quickly means that the loan is not hanging around for long and so this can get rid of any anxiety that you have about the loan. Some people do not worry too much about borrowing money, but there are others that do find it to be a stressful and so borrowing for just a small period of time could be really beneficial to them.

There are a lot of payday lenders and so it is worth comparing them. Some are more established and better known that others, but prices and customer service vary between them and it is wise to spend some time finding out more about them before not only deciding whether to take a loan but who to take the loan out with.

Are they right for me?

It is a very personal decision as to whether a payday loan is right for you. It will very much depend on your own personal circumstances. If you need money quickly then they can be a solution to that and if you have a poor credit record. They can also be an option to fall back on if you have no others. However, all decisions to borrow money need to be taken very carefully. It is important to make sure that you really do need the money, that you can afford to repay it and that you feel that it is worth the price. Check out all of the alternatives to make sure that you are making the right decision. Whether you feel a loan is too expensive will very much depend on whether you feel that it will be worth it considering what you are paying for with the money.