Low Interest Rate Loans vs Best Credit Card Rate: Borrow Money at a Low APR to Reduce Monthly Repayments

Low Interest Rate Loans vs Best Credit Card Rate: Borrow Money at a Low APR to Reduce Monthly Repayments

Conventional wisdom tells us that a low interest rate loan is better than the best credit card rate. Whilst this is normally the case, not all deals are the same so it is important to delve more deeply in order to identify possible exceptions. The cost of all sources of unsecured borrowing have risen since the financial crisis so both loans and credit cards are more expensive. This means that it is important to keep an open mind and be prepared to shop about in order to minimise debt repayments. The one constant is that borrowers are going to need an excellent credit rating in order to increase their chances of receiving approval.

Rising Cost of Low Interest Rate Loans

Despite the Bank of England setting base rates at just 0.5%, the median low fixed rate loan rate is currently 12.4%. Just 4 years earlier, it was possible to get an affordable loan at just 5.7%. The reality is that lenders are more concerned with protecting their balance sheets from bad debt than they are the plummeting base rates of central banks. Andrew Hagger of Moneynet.co.uk stated: “The risk of defaults is higher in the current economic climate, and with banks making such ultra thin margins, the rates offered a few years ago were not sustainable with any defaults soon wiping out the profit margin on the loan itself.”

Low Credit Card Rates Increase to Record High

Bad debt doesn’t only affect the cost of low interest loans, it affects low interest rate credit cards just as much (if not more). According to PwC (leading business consultants), the default rate currently stands at an historic high of 6%. The latest figures from Moneyfacts show that the typical rate is now 18.8% APR. Michelle Slade, of Moneyfacts, stated that: “A borrower with £5,000 debt on a card, who repaid the minimum each month, would now repay an additional £2,289 over the life of the debt than they would have in February.”

Low Rate Loans vs Low APR Credit Cards

The above analysis can be used to conclude that an affordable loan (12.4%) is on average cheaper than a low interest credit card deal (18.8%). However, this doesn’t tell the whole story. Alliance and Leicester currently offer the cheapest loans (8.9%) when borrowing £5,000. Provided that the borrower has good credit, performing a series of zero interest balance transfers (even after the transfer fee of 4%) is a far more affordable way to borrow money. This should only be considered by those who are able to show financial discipline and use the money saved to clear the outstanding balance.

Loan Acquisition: Understand the Minor Details

With the evolution of credit and debit cards, one would wonder why one take so long to ascend to riches. The two items allow one to spend some money you don’t have at the moment, what one needs is to have a clear source of income. In most cases the credit card comes with a charge varying from the institution that issues them.

According to experts, purchasing goods using the cards is no strange, “when you shop with a card, the transaction is no different from the normal trend” the only slight difference is that liquid cash is not used. The idea is set to tame incidences of theft which is rampant when one carries cash, ‘in any case your card get lost you only need to report to the relevant authorities” appropriate action taken will render the card unusable.

However every coin has two sides, just like loans, credit or debit cards if used carelessly can only lead one to abject poverty. Research reveals that people tend to spend a lot of money when buying on credit than on cash, this could just be a recipe of bankruptcy.

When accepting either loan or a credit/debit card for expansion purposes it is important to read the details to the dot, remember “the devil lies in the details”

In the recent past, financial institutions have made loan acquisition much cheaper, contrary to the past, they have nagging staff who literally hawk loans. The only requirement is may be and most probably a clear source of income. It is advisable for payday loan applicants to check the finer details like yearly percentage rate, grace period, transaction fees and total payment.

Others include, the schedule of payments, the mode of computing balances for purchase and in case of either a debit or a credit card observe the annual fee charged.

In some conditions, banks may include charges like processing fee. The fee in the finance charge section in most cases is additional to the interest charged on the life span of the loan.

According to some financial institutions, the annual percentage rate charged on a yearly basis up to the end of the loan may go up contrary to the pact, the argument is that the number caters for expenses like, discount points, origination fees and the interest on loans. “It is advisable for an individual to get such information in advance so as to compare on what other banks offer”. It is important to check if the payments made will exceed the principal amount borrowed.

How Auto Title Loans Are a Great Way to Lose Your Car

Fast Money, but What a Price to Pay

Auto title loans represent a fast cash option for the debtor. These short term loans are based on the value of your car. To get one you need to own your auto outright, free from any liens.

You give the lender your title to secure the loan and you continue to drive your car. Usually the loan amounts are in the $250 to $1500 range, but depending on the value of your car the amount may be as high as $10,000.

Loan Terms

Loan repayment can be worked out in a number of ways. Here are two of the most common: First, the loan is made for 30 days. You need to repay the amount you borrow plus the interest in 30 days. If you are unable to pay the full amount, you usually can roll over the loan by paying only the interest. Then you have a new note to pay in another 30 days.

Usually they will roll it over again and again. Auto title loan companies want to make as much money as possible from you. Eventually you need to repay the loan. In the mean time they will gladly take your interest payments.

The other variation is to take out a loan for several months with interest paid monthly. Then a balloon payment for the amount borrowed is due at the end of the loan term. An example: An auto title loan is made for $2500. The borrower must make payments of $400 a month (200% per year) and then pay the $2500 in a balloon payment in 7 or 8 months.

Can They Be Useful?

Auto title loans can serve a purpose. You need to extraordinarily careful how you use them. The only way to use them to your advantage is if the money you receive from the loan will save you some other fees you would have to pay. For example, if you are going to bounce some checks or get hit with some late fees on other types of accounts. Another thing to think about, is any negative entries on your credit report for payments missed, can be avoided.

Two things you need to consider. One, the fees for the auto title loan should be less than the money you will have to pay out otherwise. Two, make sure you can pay the loan back when it comes due. You do not want to roll over these loans.

Where Is The Downside?

So, fast cash, easy to obtain, where is the downside? Let’s talk interest. Most interest rates for these types of loans fall between 200 and 300 percent per year. When you first begin it doesn’t seem so bad because of the way the auto title loans are presented.

The interest is represented as a monthly amount, because you only need the money for a month. “Look, we only charge $25 for a $100 dollar loan.” You figure it is only for a month, then you pay it off and down the road you go. These loans are almost never paid off in the first month. Most borrowers who actually repay the principal amount take 8 to 10 months to do it, if ever.

Now let’s talk about your car. The sad fact is most people who enter into these loans will lose their car. If one payment is missed or if at the end of your loan term, you are unable to make the balloon payment chances are very good you are going to have turn over your car to the loan company.

They will take and sell your car regardless of what you owe. You will lose all equity in your auto if you default on the loan. This is a huge risk for you to take for such a small amount of money.

Fulfilling A Need

Auto title loan companies say they are only fulfilling a need in the marketplace. It seems that need is to have your car.

I have found that regardless of the warnings issued, many are still dead set on doing this. All that can be said is, throughly research your choice before signing the dotted line.