If you have to borrow money you will want to borrow at the lowest interest rate available. To help you compare the cost of financial products, the government has created an objective measure, which all lenders must provide - it is called the annual percentage rate or APR.
The APR measures the total annual cost of credit including all charges, such as arrangement fees.
Interest rates vary depending upon what sort of financial product you choose. The main difference is whether a product is secured or unsecured on your home.
Examples of secured products are mortgages and secured loans, sometimes called second mortgages. Unsecured loan products include bank overdrafts, personal loans and credit card balances.
Secured products are the cheapest way to borrow money as lenders enjoy great certainty that they will be repaid. A mortgage is the first charge on your home as stated on your property title at the Land Registry. Other charges are also listed.
Your mortgage should therefore carry a low interest rate and it makes sense to remortgage from time to time if you build up expensive debt.
Unsecured products are easier to arrange than secured products and you are not putting your home at risk. However, unsecured products carry higher interest rates.
If you only have a short term borrowing requirement it may be sensible to arrange an overdraft with your bank or even borrow using a credit card, especially if there is a zero rate balance transfer period. Personal loans are suitable if you want to borrow over a fixed term and at a fixed interest rate.
When you borrow it is important that you choose either a fixed or variable rate product to suit your circumstances. Borrowing at a fixed interest rate provides certainty but may not be the cheapest way to borrow. Fixed rates suit borrowers on fixed incomes or tight budget budgets.
Variable rates can be cheaper but the borrower is exposed to interest rate volatility, which is unpredictable.
The huge number of financial websites on the internet makes it easy to shop around for a good deal. We recommend visiting price comparison sites, such as moneysupermarket.com, moneyfacts.co.uk, moneynet.co.uk and beatthatquote.com.
WARNING: THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. LOANS ARE SECURED ON YOUR HOME.
