The interest rate you will be charged on a personal loan may vary. The main cost of a
homeowner loan will obviously be the interest you are charged on the sum you have borrowed. It will always be quoted as an APR (Annual Percentage Rate) to enable you to compare different loans. If you are looking for a cheap personal loan then comparing the APR is a good starting point.
However, different personal loans maycalculate the APRin different ways. So youshould always comparethe monthly repayment you will need to make as well as the Total Amount Repyable (TAR). The TAR will show you the true overall cost of borrowing themoney.
When looking for a cheap personal loan check to see if the interest rate offered is a ‘typical’ rate or a ‘set’ rate. With a ‘typical’ APR the exact rate you will be offered by the lender will depend on the amount you wish to borrow, how long you want to borrow the money for and your personal credit rating. A ‘set’ rate is offered to every one regardless of circumstances, this means that the very cheapest personal loans on the market are likely to quote ‘typical’ APRs.
Fixed rate or variable?You should also bear in mind that personal loans charge either a fixed rate or a variable rate of interest. A fixed rate of interest means that your loan repayments will not change during the life of the loan, no matter what happens to UK interest rates. The knowledge that your personal loan repayments will not increase unexpectedly allows more effective budgeting.
If it is very important to you to know exactly what your monthly loan repayments will be, or you believe that UK interest rates are likely to rise during the life of your loan, then a fixed rate personal loan might suit you best.
With variable rate personal loans your monthly loan repayments will go up and down in line with UK interest rates.
NB: Always compare the monthly repayments quoted by different loan companies as well as the APR - you may be surprised at the results.
