When making a big purchase that you cannot pay for from your savings, there are a few options available to make the interest cost as low as possible.
Often, the lowest rate credit cards can be much cheaper than low interest loans and even better, the repayments are much more flexible.
It is possible to use the system to borrow for much lower than standard low interest loans’ annual percentage rates and you can overpay when you have spare cash, or pay less when your finances are tight, without incurring the penalties associated with traditional loans.
If the retailer does not accept credit cards, then a little manipulation with your credit card can go a long way to acting as an effective low interest loan.
Some credit cards allow you to perform money transfers, where money can be transferred directly into your bank account. You receive the cash but now owe it to your credit card and as long as it is on a low interest credit card, it is one of the cheapest ways to borrow money.
You must set up a direct debit to make at the very least the minimum repayment every month, otherwise you will lose the special promotional rate. It is a good idea to try and pay more than the minimum repayment each month so you can clear the debt quicker.
You should approach paying off your credit card like you would a loan. Use structured repayments of fixed amounts so that you know precisely when your debt will be cleared and how much it will cost you in interest.
It is unlikely that you will get a low interest loan to compete with the interest rate you could get on a promotional credit card, although you can borrow a substantial amount on a standard low interest loan.
Be very wary of taking out a secured loan as your home will be at risk if you cannot keep up the repayments.
If you would prefer a low cost loan, there are a few things to be aware of. While you initial concern is to secure as low an interest rate as possible, you should also look out for other potential traps that will end up costing you more.
Choose a fixed interest rate, as this gives you the certainty that your repayments will remain the same. A low variable rate is liable to change at any time and could end up being more expensive in the long run.
You should also compare loan arrangement fees between providers. Try and find one that does not charge an initial set up fee. Another sting in the tail is the early repayment fee, a penalty of perhaps a few months interest should you try to pay the loan back early.
The only way to ensure you are getting the best deal on low interest loans is to thoroughly research the market to look out for the best low, fixed annual percentage rate that does not include an arrangement fee or an early repayment penalty.
These flexible loans that allow over payments and lump sum payments are out there and if you have a good credit rating, you should have no trouble getting access to one.
A low interest loan can be useful if you need to borrow a large amount and pay it off over a long period, giving you the security of planning affordable repayments for a set period of time.
You could also look out for some special finance deals offered by the retailer of your big purchase. You might be able to get an interest free repayment plan or low interest repayment plan from them.