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What to do if Interest Rates Rise?

Many people do worry about what they may do if the Bank of England interest rates rise. Anyone with a loan which has a variable interest rate will expect that the amount of interest that they are paying on their loans to go up. It is realistic to think this as well because most lenders will put their rates in this situation. There are things that you can do to make sure that you can cope in this situation.

  • See if you can afford it – you need to start by working out whether you can afford this rate rise. Do some calculations and you will be able to work out if you will have enough money available. If you are already struggling to afford the cost of your loan, then it is unlikely that you will be able to easily afford an increase. If you can afford it now, it is still important to work out how much of an increase you can afford. In order to do that you will need to think about how much money you get in each month and how much you spend on essentials and whether that leaves you enough to cover the increase in the cost of your loans as well as other things that you like to buy. If it does not then you will need to come up with a plan on how you can afford it.
  • Switch to a cheaper lender – changing to a cheaper lender will be a way to keep the price of the loan down. It may be that you will be charged for swapping from your current lender or that you will be charged an admin fee when you start with a new lender. It is therefore well worth finding this out before you make any plans to swap. This is because you will need to incorporate these charges when you do your calculations to work out whether you will benefit from switching to the new lender. It may be complex to calculate but it is worth the effort as if you switch and find out that it is more expensive, then you will be annoyed as well as being worse off.
  • Cut spending elsewhere – It may be that you will need to think of some ways to manage your money better so that you can afford these increased payments. One approach is to reduce your spending elsewhere. This can be quite difficult, but there are some things that you can try which might make less of a difference to your lifestyle. For example, if you compare prices of your insurers and utility companies, you could swap to cheaper ones. If you do this will all of them then you may be able to reduce your payments enough to cover the cost of the higher interest. This may not be enough or you may already be paying a very low amount. If this is the case then you will need to think or other ways to cut back. It may be that you can compare prices on other things that you buy and cut back there. Perhaps shop in cheaper shops as well. It is easy to be fooled though as sometimes a shop you feel would be cheap may not be the cheapest so if you have time, make sure that you compare the prices carefully. You may also not want to forgo quality just so that you can pay less for something. However, you also do not want to pay more than necessary. You may also need to adjust what you are buying so that you are buying cheaper things. For example, rather than eating out, if you cook yourself then it will be cheaper. You may even just need to stop buying somethings for a while. Things that you do not need, such as mp3’s, video games, new clothes, holidays and things like that may have t be reduced or eliminated. This can be hard but if you set a budget and stick to it, you might be able to allocate yourself some money for luxury items.
  • Earn more – if you feel that you cannot cut down any more or that you would rather not, then you will need to earn more money. This can be tricky for some people, but there are many options which you could consider. If you own your home, then you might be able to rent parts of it out such as a bedroom, garage, attic space or even your driveway. You might be able to pick up some freelance work or some temporary work. You may even be able to do an evening or weekend job. There are also opportunities to find work online but you do have to be careful and make sure it is with a company that you trust.

Do I Need a Payday Loan?

Taking out any sort of loan is a big decision and it is well worth thinking hard about whether you really need it or not. It is good to think about whether you need the loan, whether there are any alternatives to borrowing and then whether this is the best loan type for you.

Do I Need the Loan?

Think about what you need the loan for and whether it is really necessary for you to have it. If you can wait to purchase the item until you next get paid then this will be a much cheaper option. It could even be that you will be able to go without the item altogether. It can often be tempting to borrow money to buy something that we really want and have wanted for a long time. However, if it is not something that we really need, then we should not necessarily buy it. We need to think about what value it will add to our lives and whether it is worth paying that extra money for it. It can be good to find out how much the loan will cost and then you will be able to decide whether you think that it will give you good value for money.

Some loans are necessary of course. If you need to pay a bill and will have your power cut off if you do not and the utility provider will not let you delay then you may have no choice but to borrow the money so that you can pay it. However, if you want the money to pay for something that you can really do without such as some new jewellery then it could be best to not take out the loan.

You also need to think about whether you can afford to repay the loan. Look at when you will be expected to repay it and how much you will have to pay. You may find that you will easily be able to repay it, but others this will not be the case. With a payday loan, you normally have to repay the whole lot at once and so this means that you will need to find a lump sum of money and so you will need to be prepared for this. You will also need to make sure that you are then able to cope with the rest of your bills after you have paid out this lump sum.

Alternatives?

It is also worth considering whether there are any alternatives to taking out the loan, As mentioned above you may decide that you do not need a loan at all, but if you do, then there may be other ways to get the money. It could be that you will have savings that you could use, for example. It can be tricky using savings as we tend to save up for a reason, wanting to be able to use that money for something. If we then have to use it for something else we feel like we do not want to do this. However, it is most likely that you will be much better off if you use your savings as the small amount of interest that you get paid from them is so much less than the amount of interest that you will have to pay on a loan. If you have no savings but have a bit of time, you could consider saving up instead of getting a loan as well. If you do not have the time for this, then it is worth looking at alternative loans as well.

Best Loan Type?

Picking the right loan can be tricky but it can be really helpful. This is because you can spend more than necessary otherwise. Different types of loans tend to offer different amounts of money and also you will be charged different amounts. Payday loans tend to lend up to £1000 but they are notoriously expensive, especially if you are not able to repay them on time. This means that it could be better to look for alternatives. To get something for that amount of money, that an be arranged quickly can be tricky. However, if you have a credit card or overdraft facility these can be cheaper options, depending on how quickly you are able to repay them. The repayments for both are more flexible which can be helpful and make them easier to manage, but there is a risk that you will leave them outstanding for a long time, which could make them more expensive, depending on how long you take to repay them. If you use an unauthorised overdraft, then this will be a lot more expensive and could easily be dearer than a payday loan if you do not repay it really quickly. If you have a poor credit record a payday loan may be your only option, but if you find one with a good price and repay it on time, then you can make it work for you.