The interest rate is a percentage fee of the total loan you take. It is usually calculated annually, which means that an interest rate of five percent means that you pay exactly five percent of the remaining loan amount annually. It is the interest rate that determines how expensive a loan becomes, which is why there is a constant struggle to find as low interest rates as possible. A low interest rate is usually equivalent to a cheap loan.
Interest rate that affects how expensive a loan
However, it is not just the interest rate that affects how expensive a loan is ultimately going to be. The interest rate is of course the big cost, but then you also have different fees that can be added. It can be a setup fee for the loan, notification fee for when the lender sends out payment notifications and maybe some other fee depending on the terms.
Your total cost is also determined depending on the maturity you choose on the loan. The interest is paid all the time on the remaining part of the loan and as long as you have money left to pay back you have to pay interest. The faster you choose to repay your loan, the shorter the period you have to pay interest. This makes it cheaper if you have a short term and more expensive if you choose a long term. If you have a loan where you can choose not to repay at all, it will be even more expensive overall.
Different types of low interest rate loans
The most common option when talking about a loan with a really low interest rate is a mortgage loan. It is probably the loan you can take that has the absolute best interest rate. The reason for this is that a mortgage loan has a good security in the form of the home you own or are about to buy. Thus, it is not as great a risk for the bank to lend to you.
Another type of loan that often has a fairly good interest rate is a private loan. This is a secured loan where you can use the money for anything. There are different types of private loans from a number of different lenders and some of them do not have the worst interest rates. However, if you choose a slightly larger private loan from one of the slightly larger ordinary lenders, you can get a loan with a low interest rate.
Some loans are known for not having a particularly low interest rate at all. The most common example here is SMS loans and micro loans, where you borrow a rather small amount for a shorter period of time such as one to three months. These loans usually have a very high interest rate in relation to how short you can borrow the money. This means that such loans are not very cheap, but if you feel you have a need and think you have a sufficiently good finances, there is of course nothing to prevent you from taking an SMS loan.
Credit card as an alternative
A credit card can be traded on credit, which is basically the same as using money you do not have yourself. So the question is about a loan in much the same way as when you take a regular loan. If you are looking for a loan with a low interest rate, it may be an alternative to use a good credit card instead, at least if you do not need an overly large loan.
Many credit cards have up to about 60 days interest-free when trading with the card. This means that if you need money to buy a new TV for say USD 10,000, you can buy it on your credit card and use the credit. The condition is, of course, that you have a credit limit higher than USD 10,000 so that you can pay for the TV with your credit card.
You then have no interest on this money if you repay the amount within about 60 days (exactly how many days vary depending on when in the month you use the credit as it is usually the case that you receive an invoice at the end of each month). If you can repay the entire amount on time, you completely avoid the interest rate, but otherwise it can be a somewhat unnecessarily high interest rate, so if you test this method, make sure you have all the money until this deadline expires.
It is a perfectly ok method of “borrowing” a small amount periodically as long as you constantly pay your bill before being forced to pay any interest for the money. It is both smooth and affordable if you do it right, but it also requires that you do not have to borrow too large amounts and that you can pay back pretty soon.
How to find a low interest rate loan?
Of course, you must start by deciding what type of loan you want to take. You can take out a mortgage if you are considering buying a home or if you own a home that is not fully mortgaged today. In such cases, you can come down to very low interest rates (currently, September 2014, you may receive interest rates below two percent). If you intend to use the money for something else of your choice, you need to find a private loan instead.
Many banks and lenders offer private loans with good interest rates. It is required that you meet their basic requirements regarding your finances, such as income and debts and that you can manage a credit report etc. If you can borrow from any of the slightly larger lenders, you can get clearly approved interest rates, especially if you borrow for a little longer. .
Once you decide what type of loan you need, you can start comparing loans and interest rates. Some investigations may be required to avoid getting unnecessarily high interest rates. You can either use an information page like this where we compare loans and interest rates or you can choose to use a loan broker that collects many different lenders. There you can then apply directly and have your application sent to a number of different banks and lenders – who will then send quotes back to you. You can choose the loan that has the lowest interest rate or the one that feels most stable.
Money back on the tax
When looking at interest rates and interest costs, you should remember a nice thing and that is that you can get back 30% of your interest on the tax. As much as 30% is deductible and when you have to declare you can then fill in this declaration to make deductions and get money back.
You obviously have to wait to enjoy this until you have declared or until the tax refund arrives, but it is still good to know that this deduction can be made. When you consider how expensive a loan becomes and how much you have to pay in interest, you can remember that the actual cost is thus 30% lower.