Finance Fridays – Borrowing options

Welcome to this week's Finance Fridays. Last week we were looking at the latest Smart meter update. For this week we are talking about some the borrowing options available now the Bank of England has cut the Bank Rate which makes interest rates lower. The lending market is intensely competitive so loan rates are bound to fall. The reasoning behind the rate cut was to stimulate the economy and get people borrowing money in order to spend it. Let's have a look at some of the borrowing options available.

Mortgages – We had a look at how interest rates affect mortgages a couple of weeks ago. By now most lenders have declared their intentions with regards to if they will be cutting their tracker and variable rates. The bad news is that some have actually increased their tracker mortgage rates for new customers! Usually lenders offer different rates depending on the Loan-to-value (LTV) – this is the ratio of how much you want to borrow in relation to the value of the property. Some lenders such as Halifax have decided to hit new borrowers with a high LTV with increased rates. Of course this is to try and offset the low rates they need to pass onto existing customers on tracker deals. When taking out a mortgage the bigger the deposit the better the interest rate you will be able to secure. It shows it pays to look around at what all the lenders are offering.

Credit cards – For some time there has been many credit cards offering 0% interest rates on balance transfers. Now there are a number of providers offering 0% purchase credit cards. This could be a good option if you know you can repay the loan amount in the designated time. Some downsides are that credit cards are not accepted for all purposes and most have an upper borrowing limit of around £5,000.

Personal loans – There are many reasons why you might want to take out a personal loan. For most people it is to buy a new car and most car dealerships won't accept payment by credit card. If you have a good credit history getting a low rate on your loan should be quite simple but do read all the terms and conditions before you agree. If you have a bad credit history then think about other types of lenders like guarantor loan specialists such as Glo.

Student loans – Bizarrely the interest rate on student loans is not linked to the Bank of England Bank Rate. Instead it is recalcuated each September by taking the previous March's RPI rate and then adding 3%. This means the rate will actually increase this September. One reason to go with the official student loan company this that repayments will not start until a student has graduated and only if their salary is a certain level. For those facing fees of over £9,000 a year the decision must be made whether to accept the long-term future debt or look at other ways to finance their degree.

Have you got any loans affected by the interest rate cut? Has the interest rate cut made you think about borrowing some money?

Before making any financial decisions please assess your own personal situation and if necessary consult a professional adviser. This is a collaborative post.

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