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Loan Interest Rates

For many people the most important factor for them when looking for a loan is the rate of interest charged on the loan amount, as it is this that has the biggest influence on the cost of the loan. The interest charges are not the only cost involved with a loan, in most cases there will also be an arrangement fee, and for certain types of loan such as those for people with adverse credit there may be additional costs involved because of the necessity for a more extensive credit check to be carried out.

Loan providers are required by law to provide to the customer the APR (annual percentage rate) of any loan that they offer, this requirement was put in place to ensure that the costs are completely transparent to the customer – lenders cannot quote a low interest rate and bump-up the costs with a high arrangement fee because the law requires that the APR includes all the costs involved.

In isolation, the APR figure is generally not much use to the average customer as it is a particularly complex calculation that is used to come to this figure, however it does provide a simple and easy way to compare loans from different lenders. The figure given is directly comparable between loans, and so if there are two loans for the same amount and the same repayment period, then the one with the lower APR figure is going to cost you less.

As well as the interest rates, there are other things that you should consider when looking at a loan, one important thing is whether there are any penalty clauses in place to penalise you for early repayment of the loan amount. This may seem insignificant, however if you find yourself in the position to be able to clear the loan then you may be able to save money in reducing the interest charged, however if there is a fee associated with early repayment any savings may be negated.

The interest rates on most loans are affected by the Bank of England base rate, in times when this base rate is low the cost of borrowing will fall, making loans more affordable.

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