Which are the Cheapest Types of Debt?

If you are thinking of borrowing money, then you might want to compare the different loans to find out which is the cheapest. It is a good idea to think about this and the factors which will determine the cost.


Most people will look at the interest rate and they will compare the rates of the different lenders to see what they are charging and use this as a way to judge which is the cheapest. They will look at a mortgage rate and compare it to an overdraft rate and see that they are staggeringly different with the mortgage probably being less that 5% at the moment and an overdraft being up to 40%. That is a huge difference. However, there are other factors to consider as well as the interest rate before you start choosing the lower interest rate products.

Fees and Charges

Some lenders will also charge fees and charges for their loans and these will need to be added on to the interest when you are calculating the cost in order to compare them. Some will have a one off fee when you take out the loan, some will have ongoing fees and others will only have fees if you miss payments. It is worth being aware of all of these so that you are able to compare the loans properly.


How long the loan lasts has a huge impact on the loan. A mortgage, for example could last on average 25 years so even with a low rate of interest, you will end up paying a very large amount of money in interest alone. Whereas a payday loan, may have a very high interest rate, but it is repaid in a few weeks normally and fees are capped so the total amount that you repay will be much smaller.

This all means that you have to take a lot into consideration when thinking about what the cheapest debts are. You will be best to find out how much it will actually cost you in monetary terms and then you will be able to compare the costs more easily. Of course, you will also need to think about other factors as well. For example, you will need to borrow a certain amount of money and so you may find that some loans will not be suitable because you will not be able to get enough from them. You may also find that you might need to have a look at the repayments as well. You will find that there are different ways to repay and different amounts as well and you might want to check what these are to see whether you can afford them. It might be that for you, cheapest, might refer to the cheapest repayments.

It is also important to think about the differences between lenders as well. Although you will find that the different loan types will differ in cost, you will find that lenders offering those loans will differ as well. This means that you will be wise to compare them too because you will find that some of them are significantly different in price to others. You may find that certain loans which seem cheaper, may only be cheaper with certain lenders and other types of loans may be cheaper with others.

So, there is not a definitive answer as to whether there is one loan type that will be cheaper than another. It will very depend on how much money you are borrowing and how long for as well as the specific lender that you choose. Therefore, you will need to look at every lender that offers the money that you want and then you can compare them to see which will be the most suitable for you.

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I enjoy specialising in writing about money and finance. This is because I like the idea that I can help people with the things that I write and by writing about a topic where many people struggle, it means that I am able to do this. It is a shame that many of us have not had any formal teaching about money, bit hopefully we can all help to educate ourselves by learning more about it. I hope that my articles are a stepping stone in that direction and readers will be encouraged to learn more and more so they can make changes to become wealthier.

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