Cheap loans and “cheap money” are terms that financiers use to refer to low interest rates or loans with otherwise favorable repayment terms. Of course, “cheap” is a relative term.
At any given time, some lenders will offer better rates and better repayment terms than others, but all reputable lenders are likely to be in about the same ballpark for a given borrower. Keep in mind that the “ballpark” could represent thousands of dollars over the life of a loan.Where Do Cheap Loans Come From?
Think about it in terms of gas stations. You might find a few convenience stores offering outrageously high or low gas prices, but the majority are going to fall within a predictable range. Banks and other lenders are much the same way. Just as oil companies might offer discounts to people with branded credit cards or commercial enterprises that buy fuel in large quantities, banks also offer cheap loans to people based on credit history, the amount borrowed, and the term of the loan. Of course, cheap loans for the unemployed might be next to impossible to find.
Generally, there is a sliding scale of loans. The longer term you seek for a loan’s repayment, the lower the annual percentage rate is likely to be and the cheaper the loan. Likewise, higher loan amounts are likely to be given lower interest rates. Whether or not commercial loan rates are higher or lower depends on a number of factors discussed elsewhere. Of course, to get favorable terms or a high loan limit, one must generally have good credit to begin with or a co-signor.
Cheap bank loans are available right now to some people. Banks base the interest rates they charge on what is called the “risk free rate” or the Fed Funds Rate. The Fed Funds Rate is simply the interest rate that banks charge one another for overnight loans required to meet minimum cash requirements. It’s very complex. However, you need to understand that interest rates are reflection of risk. As the risk of a borrower defaulting increases, so do the rates that banks or other lenders will charge that borrower. As a result, it can be very difficult for a person with bad credit to be awarded cheap loans.
Cheap Auto Loans Do Exist
In addition to the cheap mortgage loans currently available, cheap auto loans are also to be found. I recently bought a vehicle and financed it for four years at a 4.25% annual percentage rate or APR. And that was a used car! The bottom line is that you have to shop around.
Good Credit Should Be A Must
The best cheap loans are loans that require good credit. It’s very difficult to find cheap bad credit loans that are on good terms, unless such loans are collateralized by something of value. Most significant money loans are secured or “backed” by collateral, so that’s not a big deal. But if you are in a squeeze and need a short-term cash infusion, then expect to pay a high interest rate and offer security (i.e. collateral) in order to get a loan.
A better option than wasting time looking for cheap loans that don’t exist is to fund short-term needs with a credit card. But you MUST make sure you pay off the card as soon as you have the money. Interest rates on credit cards are exorbitant, and if you extend payments over any period of time, you are paying an incredibly high amount of interest. The good thing about credit cards is that if you do default, you won’t lose your car title or other collateral, because you didn’t have to pledge it to begin with. Be aware, however, that credit card companies can and will sue you over deficiencies.
The best alternative to looking for non-existent cheap loans or using credit cards is to do a little bit of planning. It is not recommended that you use credit cards or pursue short-term cash loans unless absolutely necessary to your survival. Misuse of credit can lead to bad things for you and your family. So plan ahead. Each month set a little money aside in an emergency fund, and always strive to carry adequate insurance with a deductible you can afford. That way, you’ll be prepared to handle emergencies when they arise.