Interest rate drop set to bring cheaper loans

Most observers expect the Bank fo England to drop interest rates in February and that could pave the way for cheaper loans for many borrowers in the UK

Since the summer of 2006 interest rates in the UK have been on a steady climb, with five increases taking the base rate up to 5.75% and forcing the price of high street loans up too.

The same increases have also brought difficult times for mortgage payers and credit cards customers who may have had to use any spare cash to fund their mortgage payments rather than paying off balances on their credit cards.

Looking at interest rates is one thing and they are certainly a major factor for cheap rate loans but more and more loan providers are earning their profits by other means. Arrangement fees, admin charges and redemption fees are all part of the equation these days and the astute borrower needs to consider the total package offered by any loan provider.

Even though many people arrange loans to be repaid over extended time periods of five, ten or even twenty five years, the reality is very different. In fact most loans only remain on their original terms for two years, when people either pay off the loan completely, change to a different deal or extend their loans by borrowing more money.

It is at this point when the original cheap rate loan can become a lot more expensive. Penalty charges can kick in and the borrower may find themselves either paying these charges in cash or, as is common. adding them to their new loan and paying even more money in the long term. So it pays to find a flexible loan deal in the first place, even if it may not be the cheapest loan available, that extra flexibility could save you hundreds of pounds in the future.

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