Finding a cheap loan

Do you need to borrow money? Martin Lewis reveals how you can get the cheapest possible loans

Before taking out a loan always examine whether you really need to borrow.

Do a budget to establish whether you can afford the repayments, both now and in the future, and question whether it is really worth being in hock to a bank? Remember, once you borrow the money, even if you change your mind, it'll cost you just to repay it.

Is a loan the right way for you to borrow?

Loans aren't always the cheapest way to borrow. Actually if you've a good credit score the cheapest credit cards undercut the cheapest loans. Yet this only applies in certain circumstances.

If you are borrowing for a new car, kitchen or household repairs it's tough to use a credit card and the loan repayments are probably the best way.

Yet if your aim is to try and make existing credit card debts cheaper, then shoving them on a loan is a usually more expensive than using the cheapest credit card 'balance transfer' deals.

Also if you're just looking for some short term term cash for a variety of expenditures, here cheap credit card 'purchases' deals will beat loans.

Full details of the top cards and how to do this are in Martin's full 'best balance transfers' or 'cheap short term loans' articles.

Getting the a cheap loan

When you're getting a loan it's easy to think "I'll just get the one with the lowest interest rate".

Unfortunately it doesn't work like that, as lenders tend to make more of their money selling you insurance policies with the loan that the loan itself, but the cost of the insurance isn't in the interest rate.

You may not even be aware you're getting the insurance policy, but it could cost you thousands of pounds more over the life of the loan.

The first thing to do is decide whether you need this Payment Protection Insurance, which covers your repayments for accident, sickness or unemployment.

If you don't, simply go for the loan with the lowest APR, but ensure you don't get the insurance – it isn't compulsory.

If you do feel you want insurance, then go for the cheapest uninsured and get the insurance through a standalone provider; this will be a fraction of the price of getting the lender's own insurance.

For full details of the best buy loans of all varieties, cheapest loan insurers and how to choose read Martin's full Cheap Loans articles.

Is it possible to cut the cost of existing loans?

Sadly, switching to a cheaper interest rate doesn't automatically cut your costs.

Switching loans is a complex business, as paying off an old loan involves penalties.

Yet if you can get a new loan with a significantly lower interest rate than you're currently paying you may be able to save.

For full details on how to do the calculations, read Martin's full short term interest free loans article