We are often told that we should be comparing rates between different loans so that we can make sure that we do not pay more than necessary. This is sensible advice but you may wonder how often you should really be comparing as although switching is not always that hard, it still takes time and effort to do as well as taking time to do the research, so it is worth giving it some thought.
When you first take out a product
The most important time to compare the interest rates is when you first take out a product. You need to make sure that you are not paying more than necessary right form the beginning. It is wise to be careful though as getting the cheapest may not necessarily be the best thing to do. You will need to think about the other features of the loan as well. Firstly, make sure that you are comparing AER which is the interest rate that includes any costs as well, otherwise you will need to take any fees into account as well as the interest that you will pay. Also think about whether you are getting good value for money. There are lots of other factors that could be important such as whether the repayments are manageable, what the lender is like, how flexible the lender is and how good their customer service is.
After the fixed rate period
If you have a fixed rate period, then you will be tied in to that lender. Normally this will happen with a mortgage where you will have a certain amount of years where you will be on a fixed rate of interest. Once this period is ended you tend to move onto their variable rate and then you will also have the flexibility of moving to another lender. It can be wise at this point to see how their rates compare. You may wish to move to another fixed rate or you might be happy to stay on a variable rate. Fixed rates have the advantage of not going up when other rates rise and you know exactly how much you will need to pay each month. However, if the base rate goes down, then you will be stuck in a fixed rate that may be relatively expensive, so you may prefer the flexibility of the variable rate where there is a chance the rate may go down instead of up. Also fixed rate can tend to be dearer than variable rates, at least in the short-term. You often get tied into a fixed rate and some people prefer the flexibility of being able to switch.
After base rate changes
If the base rate goes up or down, then lenders may also change their rates to reflect these changes. However, some may not put theirs down if the rates go down and others may put theirs up more than the base rate increases by if there is an increase. Although you might expect the lenders to follow the change in base rates, they do not necessarily do so. This means that it is important to make sure that you keep track of what is going on. Look at what other lenders are doing and compare it to yours in order to see whether what you are paying is still competitive.
It is probably to also check the rates regularly on a yearly basis. You will find that when you compare rates, they will be different in a year compared with the previous one. Even if the base rate has not changed, there will be some lenders that will have changed their rates and there is a chance that you will find one that will be cheaper than the one that you are with.
It is wise to be careful when switching between lenders. You may find that there is a charge if you switch from one lender to another. Do check with your current lender before you do anything. You should also look out for admin charges and other fees that you may have to pay up front to your new lender. Although you may find that it is still worth moving even with these fees, make sure that you find out if there are any and if so, how much they cost so that you can allow for them in your calculations. You may find that as you have to pay it as a lump sum, that you will have to take some time to save up first. It is also worth noting that all variable rates can change at any time so if you switch to a lender that is just a little cheaper, you may find that they will not stay cheaper for long and the move may have not been worthwhile. Consider how much money you want to save to make it worth moving. Most people would not move for a saving of £10 a year but if you could save this per month of even twice or three times, then perhaps you would think that it was worthwhile.