When Less is More: Smaller Loans Can Be More Expensive
Whilst interest rates will differ across lenders, they generally remain relatively stable dependent upon your credit rating and how much you borrow. It’s no secret that the better your credit score and financial history, the lower your loan’s interest rates will be.
But the mistake many people make is assuming that smaller loans carry lower interest rates simply because the amount of money is relatively low. In fact, many small loans can amount to be very expensive in the long-run as the interest rate charged for borrowing a couple of thousand is actually higher than larger loans – something the majority of people overlook!
But as long as you do your research and are in-the-know, you can avoid paying over the odds for a small loan despite the commonly high interest rates. Here are some top loan options and tips for sidestepping unfairly high rates.
Purchase card deals
If you know you’ll have the funds to make the repayments quickly and efficiently, shop around for card deals as many will offer 0% interest rates for a short period of time.
Before applying for one of these cards, it’s worth analyzing exactly how much money you need and how long it will take you to pay it back, as you’ll need to find a rate deal that lasts for the duration of time you think you’ll need.
This is why this option is only good if you know you’ll be able to pay everything back in time before the card’s interest-free deal comes to an end.
With more people than ever turning to personal loans, they certainly have more advantages than we’d perhaps realize. Probably the best option for those who aren’t particularly disciplined with their money, personal loans are great because they don’t let you change your monthly payment program.
A card will often give you the flexibility to pay as little or as much as you like per month, but a personal loan doesn’t. So, if you’re worried you won’t be able to discipline yourself enough to keep interest low on a card, opting for a personal loan is much more likely to keep you in line due to the lack of flexibility and consequence if you don’t make your payments on time.
An option not many of us think about when we need some emergency cash, overdrafts can be a good option for small amounts. As long as your current account is fully authorized in your name, you may be able to get a 0% interest rate up to a specific limit. However, all banks will differ on their overdraft policy, so it’s important to check out the rates you may face before going ahead.
Whilst small loans may appear less daunting than larger loans, they can certainly add up in terms of overall cost. But, as long as you do your research and choose the correct option for you, you’ll be putting yourself in the best possible position to avoid high costs.