Whenever you borrow money, you always want to ensure that you're getting the lowest available rate. If you get stuck on a fixed mortgage for five years and find that you're paying 3% more than the basic rate, that's going to cost you a fair sum. However, that's very much a long-term borrowing option, so do the same principles apply for short-term alternatives?
The answer probably isn't as simple as you might think. While there are plenty of ways in which you can cut down costs, it's not always as straightforward as comparing APR. You have to be careful not to dismiss any options out of hand, just as you can't jump all over the first offer you receive. So what should you be looking for?
Actual Cost of Borrowing
All lenders are required, by law, to show representative APR on all documentation, whether online or in a store. However, this isn't a particularly effective guide for borrowers looking at short-term solutions. Unusually, a company offering loans at 3,000% might actually be cheaper than a competitor offering a rate of 300%. The reason for this discrepancy is simply found in the way APR is calculated and how limited period loans are structured.
So if interest is charged on a monthly rate, the representative APR will appear much lower than those companies which offer loans that are charged on a daily basis. However, as mentioned, this doesn't actually mean that the lower percentage is indicative of better value. Consequently, it's massively important that you get a quote and find out what it will cost to borrow the amount you need for the length of time that your require.
One thing you need to be extremely wary of is any lender who will only proceed with an application after you've paid a fee. This is an unethical practise that is still very much in operation today, so always be wary of potentially costly scams. No legitimate lender or middleman is going to ask for money upfront, so don't get fooled into believing sales patter.
Fees and Charges
Almost all loans and borrowing agreements come with some sort of fee attached. Whether it's for early repayments or to cover the cost of speedy transfers, you still need to know where you stand as a borrower before committing. As with the aforementioned rates of interest, you should seek to establish what charges are involved with your short-term loan and factor these into your overall calculations.
So if you find that one provider is able to offer a lower APR but then charges £20 for a bank transfer, it may mean that it's not actually the most cost effective option.
Use Lenders, not Middle Men
Comparison sites have their place, particularly when it comes to comparing identical products and quotations; however, there can sometimes be a cost associated with this kind of service. Whether this comes in the form of a literal charge or a more subtle adjustment to the interest rate that enables all parties - except the borrower - to benefit, it's sometimes a more expensive way of doing things. So, at least to start with, consider going straight to the lenders to see what they have to offer.
Don't Borrow too much
The most important thing when borrowing money is to only ever apply for the amount you need. This is perhaps even more important with short-term solutions that have comparatively higher rates of interest, meaning you pay more for every penny borrowed. Of course you also need to be able to repay it in full and on time, so you don't want to overstretch yourself and come up short.