Finding the cheapest way to borrow money

Borrowing money can be expensive, for many people the amount they pay out of their paychecks each month in interest alone is sickening. It would be great if we could avoid ever getting into debt but no matter how hard you try sometimes you have to borrow money: it could be for education expenses for college, perhaps if you suddenly become unemployed or for emergencies like a replacement boiler. You may also want to borrow money to start up a business or buy a house which could make you money in the long run.

A financial product though is like any product and you can save massive amounts by shopping around, the problem is that the cost is much more difficult to understand it isn't just the interest rate you need to look at and usually you will have to calculate the cost: this can be difficult to do but is worthwhile. For some loan types you can also use a calculator found online, this is especially the case for mortgages. You will also often find that lenders give you the cost of a loan but there are a couple of things to remember: one it may be a typical cost based on you repaying a certain amount in a certain time or based on a variable rate of interest that could change. To get an accurate cost do your own sums based on what the interest rate will be at different times, not just the introductory periods that on credit cards especially may be low. Also remember to allow for compound interest where you will get charged interest on the interest charges that have already been applied: not just on the original amount. You will often take out a loan or mortgage that is over a fixed term, sometimes you can repay early, sometimes for free sometimes with a charge: work out what you can afford and then consider what is the cheapest option based on what you can repay per month: sometimes paying more per month will cost you less overall so consider both and which is most important to you: it could be you would rather pay back less per month and pay more overall but have more spare spending money and margin for error.

Variable rate mortgages and other loans are especially difficult to plan for: therefore you may be better off with a fixed rate if you are going to be on a tight budget. With a variable rate mortgage an increase in interest rates by the federal reserve or the equivalent in your country may see your repayments or at least your overall cost soar, of course the opposite is also true and interest rates may be decreased making your loan cheaper: this is a gamble you take with these kind of mortgages and loans and a knowledge of economics even if basic may be helpful. If the economy is likely to experience inflation during the period of your loan then consider that fixed rate may be cheaper: inflation is likely in a growing economy going through a boom. If though the economy is heading into a slump then it may well need a boost from a drop in interest rates, which will encourage spending.

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