Borrowing money is something we all need to do at some point, when we do we accept that interest is going to be a factor. It’s unrealistic and unreasonable to expect otherwise. No lender is doing it out of the goodness of their hearts, where many lenders are more than happy to help and do indeed put their customers first, they are running a business and interest is how they make a profit. In all fairness and in the defense of lenders, without making a profit they’d be unable to offer the service that they do.
Without credit and successful lenders leading the market, life would be very difficult for many of us. Imagine trying to buy a house without the possibility of a mortgage. Many of us would simply never save up enough money to buy one outright. The same can be said for cars, weddings, holidays and any other large purchases that require multiple payments.
Applying for credit is one of the things that makes this possible and if we were being honest with ourselves; none of us would want to be without it. It’s good to have that option there. Credit is something we do out of necessity or convenience and in both occasions, interest is a natural part of this, a covenant between us and the lender, who like any other service provider should be paid for the service they provide.
A focus on customers
The good news is customer service and satisfaction is more important to lenders than ever. In this modern age if customers found a lender to be greedy, uncompromising or difficult to deal with they can should about it on platforms like TrustPilot or on social media. This means lenders need to engage with customers more and complaints are taken seriously.
Lenders are also under constant scrutiny from the Financial Conduct Authority or for short the FCA and can incur heavy fines if they are nor treating customers fairly. This extends to customer service concerns to financial matters too. For example, if the FCA believe a lender is charging too much interest they are likely to be fined themselves, something that would also be made public.
Keeping Interest Low
Although understanding that interest is an essential part of having credit doesn’t mean we shouldn’t do what we can to keep it as low as possible. Here are several tips to find the best loan with the cheapest interest rate:
Shop around
It’s never sensible to just take the first loan we find. Sometimes it’s better to shop around to find the right loan. Interest rates vary and some are cheaper than others. If you’re struggling to know where to start, then consider using an interest calculator. Many lenders have these on their websites but there are also independent ones too. The independent ones are often the best because they display a list of various credit options, allowing you to compare each product and pick the one that works the most for you.
Consider different forms of credit
Credit exists in many different forms, from credit cards, overdrafts, to various types of loan. Loans come in many different types so always check which sort it is before agreeing. Is it a personal loan or a secured loan? A secured loan, if not paid pack on time could have implications to your mortgage and home ownership. So don’t apply for one lightly. They are typically for house renovations or other home related expenses, where personal loans are for more general forms of spending. Each however, along with credit cards and overdrafts are considered long term lending.
Short term loans are also a viable option, this are comprised of payday loans, same day loans and various other types. These can usually be more suitable than a long term loan in many cases but are not considered low interest loans.
Payday Loans Scale
Are they FCA approved?
It pays to verify that the loan company that you’re thinking of taking out a loan from is totally legitimate as well as recognised by organisations like our FCA. Companies that are approved by them are heavily monitored, audited and operate with the blessing of the government, meaning they need to adhere to the same rules that all lenders must obey so they can trade in the US.
There are 3 essential pieces of criteria that all lenders need to meet:
- Every time an interest rate is taken out in the US it needs to be capped at 0.8% of the original amount borrowed. Any more than this is considered too high and illegal.
- The customer can be charged a fee for late payment, but this can never be higher than $15. Otherwise an unscrupulous lender could apply as many charges as they like.
- No matter how much time passes, or charges are applied the debt can never exceed double the original debt. For example, if they borrowed $2000, even with charges and interest the debt could never climb higher than $4000.
Every finance company in the US is bound by these rules so it’s helpful to know them.
How is interest calculated?
As discussed above interest is essentially a fee, we pay to the loan company and a way to cover their costs, therefore as long as it’s charged ethically and the terms are fair to the customer it’s something that needs to be charged. And should be for the system to work. Another word for interest is APR, which is more to do with how it’s calculated.
Being armed with the above knowledge is essential if you’re thinking of applying for credit. Even if a loan company is operating within the realms of the law, aka FCA regulations, that doesn’t mean they aren’t charging a high rate of interest. What is cheap and what is expensive are really personal judgements held by individuals, but there are loans out there that are indeed too expensive. When looking for a low interest loan make sure you follow the above advice, it may save you a lot of money in the long run.