Simple Facts That Make Loan Deal Cheap

By: amenda dorothy

Opting for E-loans is the best way of finding out a loan plan with lower rate of interest. After the advent of the Internet, loans are not only available online but also providing a borrower-friendly and cost-effective way of finding out cheapest way to sort out the financial requirements.

Getting a loan at lower interest rate depends upon several factors. They are the value of the equity, credit report of the borrower and the amount desired by the applicant. These factors decide the terms and conditions of loan plan.

In order to avail cheap loans, you should first understand the basics of equity. 'Equity' is nothing but the market value of your pledged security. As in general, the security is home, the equity can be calculated by deducting your total debt burden from the market value of your home. The deduction is done to safeguard the investment interests of the lender. You can calculate the inheriting equity in your home by following the example. If your home is worth ?15,000 and you owe a loan of ?5000 secured against this home, then the 'equity' tied up in your security is ?10,000.

When you repay ?3000 out of ?5000 loan amount, the equity increases to ?13,000. The borrowing amount is decided on the volume of equity. Earlier, the lenders were providing more than 100% of the equity. But, the credit crunch has limited the scope of over 100% credit and you can now avail maximum up to 80%. Lenders calculate the debt associated with the pledged security only and they are not bothered about your total debt burden.

Apart from equity, credit score plays the second vital role in determining the amount and interest rate of cheap loans. Credit score signifies the past credit standing of the borrower. It is maintained by specific agencies. The credit score is unbiased as the lending agency and credit scoring agency are two different entities. When the borrower has faced County Court Judgments (CCJ), bankruptcy, foreclosures or has defaulted on his earlier loan payments then his credit report reflects a poor score. The adverse credit score makes the borrower's loan application a poor case for loan approval.

Loan amount also plays a role in determining the rate of interest of cheap loans. When the borrower asks for a huge amount, interest rate on loans declines gradually. Hence, the higher the loan amount, the perfect the credit score and greater the value of the pledged security, a borrower is sure to gain the low rate loans in the UK.

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