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Last updated: 25 August 2021
While low interest rates can be great, be wary of paying over the odds for your loan. Working out your total repayable sum can be the best way to get cheap loans.
What are low interest loans?
When you take out a loan, you'll need to pay interest on it. We all like low interest rates, because that means it won't cost us an arm and a leg in addition to our monthly repayments. Because of this, low interest rate loans tend to be paid back over a longer time period.
By contrast, short-term loans demand you pay them off quickly and as such come with much higher rates of interest.
Therefore, a good rule of thumb when you start to compare loans is this: typically, the lower the interest, the longer the loan agreement. Whilst this can make your monthly loan payments more manageable, you'll likely end up paying back more overall. It's a bit of a calculation to find that golden space of a suitable loan term and the best loan rates.
What types of loan can I get?
If you want the cheapest rates, then look to long term loans, which are those with terms over a year. There are several types of long term loans.
Unsecured loans, also known as personal loans, are usually available for sums between £1,000 and £25,000, although loan providers will each have their own set of criteria (if you want less than a £1,000 loan then we'll talk more about your options later on). Unsecured loan interest rates will vary, but they'll usually be higher overall than secured loans…
Secured loans are tied to a high-value asset like your house. They tend to be easier to get – even if you've got a poor credit rating – because the lender has a concrete guarantee that they can recoup their money if you miss repayments. As a result, secured loans often come with comparatively lower rates of interest, though tend to be for higher sums overall.
Guarantor loans allow a nominated person to make repayments on your behalf should you default. They're therefore popular options for people with bad credit, although as a result interest rates tend to be higher. Plus, there simply aren't as many guarantor loans on the market, so rates are less competitive.
Can I get a low interest loan with bad credit history?
It's not impossible, but you will find it harder and options will be more limited. When you see cheap loans advertised with a tempting rate of interest, lenders in fact only have to offer that rate to 51% of customers. And those customers are usually the ones with pukka credit scores (so good news if this is you!).
With bad credit, while the best loans may be out of reach you could still get a good deal with a comparatively low rate of interest – it depends on what you're expecting. Run a loan comparison with us and see what rates are on offer – you could be pleasantly surprised!
What if I want less than a £1,000 loan?
Generally, £1,000 is the least you can borrow from a loan company. Of course, each company will have their own minimum threshold but this figure is a good marker on the whole.
If you want less than a £1,000 loan, then other ways to borrow might be more suitable and also give you a cheaper deal. Arranged overdrafts are worth looking into, as are credit cards if you have a strong credit score. Or even keep it close to home by seeing if friends or relatives can helpa instead.
How do I get a low interest loan?
We mentioned earlier that, with low interest loans, a few other factors must be considered when it comes to your overall expenditure. Monthly repayments are more manageable with low interest, but you could make a bigger dent in your wallet over an extended loan period.
We know that larger sums and longer loan terms usually lead to lower interest rates, but it's critical to remember that this will depend on your credit score, too. You therefore need to work out exactly how much you can afford to borrow and realistically pay back each month. Play around with repayment periods and see if reducing the loan term slightly gives you a better deal without massively compromising on affordability.
It's worth speaking to your bank, too. Because they have an oversight of your financial habits, it's possible you could get a cheap loan from them.
Where can I find low interest loans?
You're already in the right place! Here at usave we have a loan comparison search engine, so all you need to do is pop in your information to start to compare loans. Don't worry – it's just a soft search so your credit file won't be affected.
You'll be able to filter by interest rates, but we advise you actually focus on the total monthly repayable figure. This'll be worked out relative to your loan repayment term and APR (annual percentage rate) and can help you budget what your monthly repayments would be.