How to get the best deal on instalment loans amid the rising interest rates

Ailsa Adam July 4, 2023

When you need a large sum, unsecured loans come in handy. They are ideal for funding a variety of borrowing purposes, from emergencies like a car repair to planned expenses like a vacation. They are also a smart way to consolidate high-interest debts.

However, they are not ideal for consolidation for everyone. Interest rates for personal loans have risen, so it is difficult to get the best deal on large £10,000 loans for bad credit in the UK. Even though interest rates are slightly up, it means paying more hundreds of thousands of pounds in interest over the life of a loan.

  • The average APR on a £10,000 personal loan was 4.11%, and £5,000 loan was 16.34% in the last year.
  • Interest rates have been revised again by adding 0.25 percentage points in March 2023, making the base rate up to 4.25%.

This could be alarming for bad credit people as it means interest rates will be even higher for them.

What factors are considered in determining personal loan interest rates?

Though the interest rates of all types of loans will rise across the board, you can avoid having a bad impact on your finances. It is still feasible to get the best instalment loan deal. Before that, you should understand how interest rates are calculated.

Individual circumstances

 For all borrowing from the same lender, your friend may get a £5,000 loan with bad credit at a lower interest rate. The reason is simple to catch on. Your lender must have found his financial position better than yours.

If you have already missed payments on your credit cards or other debts, a lender will be sceptical about your affordability. You are considered a high-default borrower, so higher interest rates are charged over a period of time.

To take control of your situation, you should focus on the following factors:

  • Credit score

Keep your credit score in good condition to grab attractive interest rates. On-time payments will prove that you adhere to debt payments, and when you miss payments, it questions your financial loyalty. Try to fit in a fair credit score range. You will get better deals if your credit score is closer to the fair credit score range.

  • Income

Offset the impact of your poor credit report with the help of a good income to ensure that you will manage to repay the debt. If you have got a windfall or some monetary gifts, you can show them in your income. Do not lie or over-exaggerate about your finances. If you mislead your lender, it will harm you in the end. You will not be able to cut it and then wind up in debt.

  • Debt-to-income ratio

Your debt-to-income should be low. They make up a large portion of your credit report. Sometimes your credit score is good despite a higher debt-to-income ratio. You can make it pretty much better by reducing the amount of debt. Having outstanding dues means an extra burden on your finances.

Market conditions

Market conditions are also responsible for determining the interest rates of instalment loans. When inflation rates are high, the government raises interest rates to make borrowing money expensive to slow down economic activities.

This results in a decline in the demand for buying houses and cars and borrowing for vacations and weddings. You can do nothing about it as the levels of inflation regulate these rates, but you can focus on your personal circumstances. There are ways to be able to get a good deal by improving your credit score and keeping your debt-to-income ratio low.

Loan options

The interest rates also vary by the borrowing amount. The interest rates will be lower when you borrow a higher sum. Money supply and interest rates have an inverse relationship that makes large funding available at a lower interest rate to make it less expensive compared to short-term financing.

Here are some lenders along with the APR they charge for instalment loans:

Lenders offering up to £5,000Representative APRLenders offering up to £2,000  Representative APR
First Direct7.9%Lending Stream1333%
118 118 Money49.9%Savvy341.7%
1 Plus 1 Loans47.8%Solution Finance278%
Pounds to Pocket49.9%Loans2Go770%

How to choose the best personal loan rates

It can be a bit trickier to choose the best personal loan rates. You should do proper research and compare the APR. Make sure that you do not confuse APR with interest rates. Some lenders typically show only interest rates on their websites, but you can contact them to know about the estimated APR.

Try to get a pre-approval letter from a lender. They will peer into your financial situation to give you the quote. However, this is not the actual one, as it is quoted without running a credit check. The actual rates will be higher, but you will at least have an idea of whom you should borrow from.

Keep your credit score in good condition. If past credit inquiries and missed payments are old, it will not affect much on your borrowing capacity and interest rates much. Try to show less reliance on debt by keeping a credit utilisation ratio as low as possible.

The bottom line

Interest rates are rising, which means instalment loans will also become expensive. If your credit score is bad, qualifying for a personal loan at a lower interest rate will be more challenging.

Compare the market rate and then try to choose a lender that lends money at the lowest possible interest rates. However, in addition, you should focus on creating a budget. Having money stashed away will help you support when you are strapped for cash. If you have got to borrow money, do it from HugeLoanLeder. The APR, this lender charges is 30%., which is quite affordable compared to other mainstream lenders.

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