TR Money and Loans

Impartial loan, interest and credit scoring advice.

From the blog

Is a Fixed Rate Loan the Best Way to Protect Against Interest Rate Rises?

Interest rates can be unpredictable and if you have a loan then you may worry that increases in interest rates could make it difficult or even impossible for you to make the repayments. If you take out a fixed rate loan, then the interest rate cannot change which means that you are protected against these interest rate rises and therefore do not need to worry about the loan costs rising. However, there are other factors that you need to consider before you automatically opt for this.

Fixed rate loans could be dearer
A fixed rate loan rate is usually set higher than the current interest rate. This means that if the rates then do rise, the lender will not miss out on the extra interest they would have gained had you been on a variable rate. If rates do rise considerably then you could find that it was worth paying that extra high interest at the beginning of the loan period as you will end up paying less in the long term. However, rates may not rise and you may end up paying more. It is hard to predict what may happen though. It is fair to say though that a lender will want to give themselves the best possible chance of profiting form you and so if they felt that rates were likely to rise a lot, they would set their fixed rates in order to counter the costs of that.

Rates may fall
There is always a chance that interest rates may fall. If you are on a fixed rate deal then you will not be able to take advantage of these falls in interest rates. Some lenders may not pass these reductions onto borrowers anyway but if it falls significantly then you may miss out. This has happened before when rates suddenly fell to record lows and quickly and those tied into to fixed rate deals found themselves paying much more in interest than many other people. However, if the rates are already very low, then they will not be able to fall that much and so in this situation you could find that you will not miss out as variable rates will not go down.

Fixed rate period may run out
Some loans have a limited fixed rate period. This means that it will only last for a short time and then you will move back onto the standard variable rate. This will depend on the lender and the type of loan and so you will need to make sure that you check this. It may be that once you go onto the variable rate you will be able to look around for a new loan deal and move to someone more competitive as it is likely that the variable rate that you move to will not be competitive; although you will have to check this to be sure. You may also find that you may be tied into that lender once the fixed rate period ends and will not be bale to move or will have to pay a fee to be able to do so. Check this when you take out the loan so that you can make a decision based on this.

Consistent payments
It may be that you like the idea that you can have a loan and always repay the same each month. When interest rates fluctuate it means that you have to pay a different amount each month. This is fine if you are paying less as that is easy to manage and can be helpful but if the rates go up and you have to find more money then it can be difficult. This is particularly hard if you are only just managing to cover your costs and so cannot afford to have any of them going up; even if it is just a bit.

So as you can see, there are advantages and disadvantages to getting a fixed price loan and so it is worth thinking hard about whether it is the right thing for you. There are other options as well which could help to protect you against rate changes which you should consider. For example, if you save some money each month then you will be able to use this to help you if you have to pay more interest each month. Also, if you take a loan for a very short term there is less risk of the interest rates going up. If you borrow nothing at all then you will not have to worry about the cost of interest rising. You can also reduce spending at times when interest rates rise so that you can afford the repayments.

It is worth considering where you are with your finances and how much you can stretch your budget as this will enable you to calculate how much risk you can take on with regards to the chances of rising interest rates. If you have savings and can manage the repayments easily, then you may not need to worry so much, but if you are struggling with repayments and have no savings then things could be more difficult for you if your interest goes up.

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Can I Easily Improve my Credit Score?

Our credit score is really important as it is a way that lenders and anyone else that we are entering finance deals with, will work out if they want to take us on and if so, how much interest to charge us based on our credit score. This means that if we can improve our credit rating then we will have a better chance of being able to borrow money as well as a better chance of securing a rental agreement or mobile phone deal.

Ways to Improve a Credit Rating

It is really important to start by making sure that your credit rating is correct. In order to do this you will need to have a look at it and there are free websites that you can use. You will need to check all of the information is right and if you find errors report them as they could mean that your score is calculated incorrectly. This could be as simple as an incorrect address or incorrectly reported CCJ or credit application. If your find an error report it as soon as you can to the credit reference agency and they will look into it. As soon as you have reported it, it will be marked as ‘disputed’ on your credit file and lenders know the information Is not reliable and within 28 days they have to get back to you explaining whether they have made the change or if they don’t agree with you and why. If the incorrect information is with reference to a specific lender then it can be worth you speaking to that lender to ask them why that information is there and if they can change it. If you situation has changed then you can add a notice of correction of 200 words explaining this to possible lenders so that they will be more likely to lend to you.

After you have checked for errors make sure that you are registered on the electoral role as this is something that is checked and could make a huge difference. It will not take that long and your credit file should change quite quickly and your score will be adjusted as a result.

The report will not actually give you a clear score as different lenders use different criteria when scoring. This is where it is tricky and you cannot be completely sure what you might be able to do to improve it.

It takes time to build up your credit history and so unless there are any big errors on your credit file, there are no more easy ways to quickly improve your credit rating. It will take at least six years before anything negative will no longer show on your credit file and so it may just be a case of waiting.

Longer Term Fixes
It is wise to make sure that you pay all of your bills on time as this will show to potential lenders that you can manage your finances well. It may be that you are linked to another person through a join account or loan and if they have a poor score it could reflect badly on you so check for this. If you are linked to someone with a bad credit score then talk to them about whether they can make any improvements.

Try to eliminate debt as the more you have the better your credit score. This is obviously not as easy as it sounds on paper, but if you look at how much debt you have and then see whether you can reduce your spending to pay off a bit of that debt each month then you can slowly reduce it and this will go in your favour.

Moving home a lot can go against you. Lenders tend to feel less comfortable wit customers who move home frequently so try not to do this if you can help it. If you do want to move then try to move to a home that you really like, somewhere that you will want to stay in for a long time.

Having any CCJ’s will look really bad on your credit record. These occur if you cannot keep up with your debt repayments. Therefore, make sure that you are aware of how much you need to pay each month and do everything you can to prioritise these payments. Then you will avoid getting a CCJ.

A solution that some people take is credit builder car. These have very low credit limits and high interest but are designed for those with a poor credit record. The idea is that if you use them and pay them off each month it will show that you are credit worthy. As the risk for lenders with these cards is high; the interest charged is high as well. This means that you may want to swap to a cheaper card once you have built up your credit rating enough to be able to get one. Only take out such a card if you are confident that you will at least keep up with the minimum payments and bear in mind that with interest so high it is much better to repay the full balance each month in order to avoid paying it.

There are credit repair companies that will advertise that they can help you. However, they charge a lot of money just to look at your credit file and show you where you need to improve. You can do this yourself or if you are unsure you can get free help form the Citizens Advice Bureau or Money Advice Service. There is nothing else they can do to help you, even if they claim they can so do not use them as you will just be wasting your money.

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