When the Bank of England increase the base rate then those that have loans or are considering loan may start to worry that the rates that they are paying or will pay will go up. It is not surprising that we worry as no one wants to pay more than they have to or get into trouble financially if the rates are too high. All loans could potentially be affected by this and so it is worth being cautious.
What if I have a payday loan?
If you already have a payday loan then it is likely that you will not be affected by a change in the base rate. Payday loans tend to have fixed interest rate and so this will not change if the rates go up. As the loans are generally repaid within a few weeks of the money being borrowed, a rate change will not have a significant impact on a borrower and therefore they will be unlikely to pass it on to them.
If the loan is not repaid when required then there will be extra interest to pay. This will usually be at a higher rate than you paid before and there is a chance that this could be variable and may go up when the base rates go up. Hopefully, you will pay the loan off in full and so this will not be something that you will have to pay. However, it is worth checking so that you are aware of whether this might be a cost that could go up. It may even help to motivate you, to make sure that you have enough money available to repay the loan in full, when you need to.
What if I am considering a payday loan?
If you are considering a loan, then you may find that the rates change as the base rate goes up. Payday loan rates are usually quoted as AER which is a rate that includes the fees of the loan as well as the interest rate. This will mean that most of the rate is actually in fees which will not change when the rates change. As the loan is likely to be relatively small, a rate change may not actually make a great deal of difference to the price anyway. The rates also tend to be pretty high and so they may not bother increasing them if the base rate goes up anyway.
It is worth making sure though, that you are not paying more than necessary when you take out your payday loan. There are many different lenders and it is well worth comparing them to see what different rates they have. If you use the AER to compare them then this will allow you to compare them on a level playing field. Alternatively, you might prefer to put in details of how much you want to borrow and how long for and get a figure of how much you will have to repay and compare that. You might find that easier to relate to. It is important with any lender, that you remember that the cost is not the only factor you should be considering though. There are other things that are important as well. You need to consider, for example, that the lenders will differ in their reputation, how they treat you, what their customer service is like and things like this. You need to make sure that they will still provide good value for money by finding out a bit about them before you sign up.
So it is tricky to say whether an increase in interest rates will make your payday loan higher. It is unlikely to matter if you have already taken out the loan but if you are considering one, then it may make a difference. With all loans it is important to compare lenders in order to work out which will be the best for you and so you need to do this with a payday loan as well. You can avoid the effects of a rate increase if you find a loan which is cheaper but it is worth taking some time to check and see whether you think that it will offer you good value for money. It can take time to do this and often, when we want a payday loan, we are in a hurry. However, it is worth taking the time to do this because you will then be able to know that you have made a decision based on information that you have looked at. This is important because it means that you will not have any regrets as you will know you made the best decision that you could at the time. It should not take that long and it could make a big difference to you financially.