Anyone who has ever gotten a loan knows that the interest rate on it matters quite a bit. It’s crucial to get the lowest rate you can to avoid paying more than necessary. There are, however, a lot of things about interest rates that many people don’t know. When you expand your understanding of these rates, you will be able to get a better deal on your loans. Your interest rate deeply affects your ability to repay your debt, so you should therefore learn all you can about it.
Bank of England Base Rate
The official bank rate is essentially just the interest rate that the Bank of England sets for lending to other financial institutions. This rate has a direct impact on what borrowers like yourself pay for their personal loans. This rate changes with time, and it is a good idea to stay current. Some people wait for this rate to fall if it is particularly high, which can be a wise choice.
How the Bank of England Sets Interest Rates
The Bank of England always tries to maintain an inflation of about 2%, which is fairly low. If inflation happens to exceed this percentage, interest rates naturally go up. If the inflation decreases, so do the interest rates. While higher interest rates might not seem like a good thing, they help to keep inflation in check. The more individuals pay on their loans, the less they will spend on other things. When people aren’t spending as much money on goods and services, prices on them do not usually go up.
Other Factors that Influence Interest Rates
The base rate that set by the Bank of England is not the only factor that determines what rate you will pay for a personal loan. Your credit also has a huge impact on this number. It is pretty much a natural law of finance that good credit equals lower interest rates. This is why people with low credit scores struggle to get reasonable rates on loans.
Those who have a solid job history and adequate income are also more likely to receive a lower interest rate. Basically, the more qualified you are for a loan, the less you will pay for it in the end. This is why it’s so important that you carefully review your credit before applying for a loan of any kind. When you take a good hard look at your credit report, you will be able to formulate realistic expectations for the rate you will get.
Getting the Best Interest Rate for your Loan
If you are interested in getting a personal loan, there are a couple effective methods of getting the best possible deal. The first thing you have to do is spend some time shopping around. You will need to get quotes from numerous lenders. The internet is an invaluable resource when it comes to doing this type of research. You can quickly and easily get quotes for loans without even leaving your home. The more of these quotes you get, the easier it will be to get a good overall deal on the loan you need. Even people with bad credit should still make an effort to do this research. You might be surprised at how different interest rates are from lender to lender when you start getting quotes online.
Types of Interest Rates on Loans
There are two main types of interest rates on loans that you should be aware of. A fixed interest rate always stays the same until the very end. A variable interest rate has the potential to change (either increase or decrease), depending on several factors. Before you decide which type of interest rate to go with, you need to consider the amount of risk you wish to assume. A variable rate is inherently riskier than a fixed rate, but it can result in paying less for your loan overall.
Advertised Interest Rates
A lot of people are eager to apply for loans when they see the APR or interest rate advertised very low. The truth is that lenders only have to give these low rates to 51% of those who are approved. If you don’t have very good credit, it is extremely unlikely that you are going to get the advertised low rate.
Final Thoughts
The interest rate on your loan is something you absolutely need to consider very carefully before borrowing any money. A very high interest rate can make repaying even a relatively small loan quite challenging. The more cautious you are about accepting a high rate, the less likely you will be to end up in big trouble down the road. If you want to get a loan, there are lots of private lenders based online that can really help you out in this regard.