Low Cost Loan

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Compared to lending practices a generation ago, every loan is a low cost loan. Lending rates have been stable and low since the early 1990's, and despite some recessive economics the financial markets are still lending at very low rates. That said, enjoy the value and keep checking the APR for the best deal - there's still up to 10% between the best and worst performers at any given loan amount.

If you asked most people what makes a low cost loan, almost all will say a low interest rate. If you didn't know, the rate is quoted as an APR (Annual Percentage Rate), which is a universal assessment of a loan's appreciation value. They account also for any administrative costs and accounting for the entire period of the loan. The main exception is bridging loans, which are usually quoted monthly.

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At high borrowing rates (£7,000 and up) especially across long periods of time, a low cost loan probably will be a product with a low interest rate ideally best-of-breed in its term class. But at lower amounts there are plenty of exceptions. Consider the benefits bolted on. If you're buying a car, for example, benefits like an insurance deal or free recovery might make a higher interest product more attractive. And above all, if you're planning on taking out premium protection insurance, what might look like a low cost loan on the face of it could rise dramatically in price past its competitors once you add on the insurance premiums.

The only way to truly define a low cost loan is "the loan at the best price, once you've financially accounted for all the associated benefits which are of genuine value to you". That equally means, if you don't need breakdown cover, there's no point treating it as a benefit. Some benefits are harder to visualise financially. For example, a three month payment holiday at the front of the loan won't mean you physically pay less - but it could be worth hundreds of pounds in personal cashflow.

To get a best guesstimate of a low cost loan there's no substitute for being aware of all the relevant facts - weigh up the benefits and especially at the lower borrowing levels, don't judge on the APR alone.

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