Is it Worth Avoiding a Loan When Interest Rates are High?

When interest rates are high it means that loans will become more expensive. This is because loan interest rates are determined by the Bank of England interest rates and if these are high all interest rates tend to be high. The higher the rates, the more expensive the loan as you will have to pay a higher percentage of what you are borrowing back to the lender.

If you are doing any sort of borrowing, whether rates are high or low you should think hard about your decision. Consider whether you want to pay extra for the privilege of having this money. Calculate how much you will pay in costs for the loan and think about whether you think that it is worth it. Think about what you are spending the money on and whether you still think it is worth buying and will offer good value for money even considering the extra money that you will be paying for it.

With a long term loan, such as a mortgage, the current rates of interest may not have much of an influence on the final amount that you pay. This is because interest rates fluctuate and if you are borrowing over a twenty-five year period then what the rates are when you take out the loan is not an indication of what they will be on average for the term on the loan. This is true of any long term loan and so it is less relevant. However, if you are taking out a short term loan or an open ended loan (such as an overdraft or credit card) then it is much more relevant. You are more likely to be repaying in the short term when interest rates may not change that much and more importantly are unlikely to get much cheaper. Therefore the term of the loan could have an impact on the decision that you make with regards to whether you should wait until interest rates change.

Of course, delaying borrowing could mean that interest rates may go up or that you will have to wait a very long time for them to fall. This is a risk that you may be willing to take as you may be happy to wait if you can borrow at a cheaper rate. While you are waiting for the rates to fall, you could take the opportunity to save up money. You may find that you can save up enough, to be able to borrow less or not have to borrow at all. It is also worth using the time to think about whether you really need to borrow at all and whether you need the items that you are saving up for.

If you already have loans and the rates are high they will be costing you more money. It can be wise to see whether you can think of ways that you can pay back those loans more quickly so that you can save money, rather than taking out more loans. Payday loan firms such as offer quick and easy repayment options with no additional charges. This means repaying overdrafts and credit cards, personal and car loans and even mortgages that much more quickly. You can save significant amounts of money by doing this and so it can be worth looking at your spending and seeing if you can cut down as well as at your earnings and see whether you can increase them.

It is always wise to think hard about any type of borrowing whether interest rates are high or low. Think about whether you really need the money and look at how much it will cost you to borrow. Think about whether you can save up rather than borrow or go without. Then think about how you will afford to repay the loan, whether there are monthly repayments or not you will still have to pay back the money. Repaying a loan can be extremely stressful especially if you have financial difficulties while you are doing it. You may find that you have other stresses and the stress of the loan really gets on top of you. Consider how you might cope if you lose your job, need to borrow more money or just have very high expenses and what will happen if interest rates rise even more and you have to find more money to repay. It all sounds very negative, but it is better to address these questions before taking out the loan and making sure that you are well prepared.

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