If you are borrowing money then it is likely that you will want to find the loan which has the lowest interest rate. You might therefore decide that you will use a comparison website to do this. Although there are advantages to doing this, you do need to be careful as there are some problems as well.
Advantages of a comparison website
A comparison website works by listing a selection of loans by interest rate. This means that you can easily see which of them has the lowest interest rate. Therefore, if you are searching for one with the lowest rate, you can just look at the list and select it. It can be really quick and means that you do not have to go through every lender and look for yourself to see how much the interest is.
There are many different comparison websites as well which means that you can look at a selection of them. As they do not all list the same lenders, by doing this you will be able to get a better idea of what lenders are offering as there will be more to choose from.
Disadvantages of a comparison website
Comparison sites will not compare every lender for a number of reasons. Some lenders do not appear on comparison websites. This is because they would rather deal with customers directly and they do not want to have to increase their prices in order to appear. There are therefore likely to be cheaper loans available which never appear on comparison websites.
Comparison websites make their money from recommending loans. This means that if you spot a loan on their site, click the link and then take out the loan, the comparison site will get paid commission for that lead. Obviously, they need to make money or else they would not provide this service but there is a problem with them being paid commission. It means that they are far more likely to want to recommend a loan which pays them more commission. Therefore, they may include loans which pay little or no commission on their sites at all and you could be missing out on a good deal because you have not seen that lender. Not all sites do this though and you may be able to find out which do not and make sure that you use them.
One alternative is to look up lenders on a search engine and then check all the interest rates yourself. This can be extremely time consuming and there is a big chance that you will not be able to find them all anyway. This is why many people will use a financial advisor instead. They keep up to date with all of the latest rates and so they will be able to quickly let you know which interest rate is the best. You will have to pay them for their time though and so unless you think that they will be able to save you more money than you are paying them, they will not be worth it.
There are some websites which do compare rates and do not only use those that pay commission and will even list lenders that do not appear on comparison sites. These can be well worth finding, but you will need to be sure that you trust them and that they keep their information up to date.
Caution about low interest rates
Lastly, it is really important to be cautious about just looking for low interest rates. Although these can seem like the most important factor when deciding on a loan, it is important to realise that there are other things that you should take into consideration. These things include making sure you can manage the repayments, taking any fees into account, trusting the lender and understanding how the loan works. It is really important to do a lot of research so that you are fully aware of what you are getting into and can work out whether you can afford the loan. It is all very well getting the one with the lowest interest rate, but if it has really high fees or the repayments are unmanageable then you might end up paying out more compared with one with a higher interest rate. So, make sure that you calculate the actual cost of the loan rather than just looking at the rates. You can do this by comparing the AER which is a percentage rate that includes fees and interest or by adding up the cost of every repayment you will need to make to work out what you will repay in total. Also look at your previous bank statements to see how much you will be able to afford to repay each month so that you know whether you will be able to afford the repayments on this loan. If not, then you will need to look for one that has smaller monthly repayments so that you are sure that you will be able to manage those repayments.