We seem to be in a state of permanent low interest rates at the moment. It has continued for a long time and there are many savers that are finding it very difficult to manage as a result. This is because some savers rely on their interest to help them out and if the interest rates are low then they will be getting very low interest. This means that it is not savers that benefit from low interest rates but it is borrowers. Borrowing money can be really expensive but the lower interest rates are the cheaper it is. Therefore, there are ways that borrowers are able to take advantage of the low rates.
Taking out good debt
While rates are low it can be a good time to borrow because it is cheap. However, this does not mean borrowing for the sake of it as this is never sensible. What it means is that if you are thinking about buying a home, doing some refurbishments or spending other chunks of money that will have a positive effect on you and your life. Any sort of good debt will not only require it to be for a sensible purpose but also for it to be as cheap as possible. Although when rates are low, we do not pay that much for our loans, we should still make sure that we are not overpaying. This means that we should compare the different lenders and make sure that we are going with the one that offers the best value for money. Even one that is a tiny bit cheaper will save you some money and so it is worth the effort of comparing them. You need to also look at what else they are offering with regards perhaps to the reputation of the lender, the term of the loan, the amount you have to repay each month, to make sure that you are happy with all of that as well as the low price.
You do need to be careful though as if rates are really low, they will be more likely to go up than down. This means that if you take on a large debt, that will take you a long time to repay, you could end up with very high interest payments. So, think hard about whether you are prepared to take this risk. It may be better just to borrow a small amount of money so that it will not be unmanageable if the rates do go up. It can also be wise to calculate how much the interest might go up if the rates do go up a lot and work out whether that is something that you can afford.
If you already have debts then having low interest means that you will have more money available to repay them early. This means that when the rates do go up you will have a lower debt or you may have even have paid them off completely.
It is wise to look at the terms or check with customer services before planning on repaying a loan early. Some will have an early redemption fee which means that they will charge you if you repay it early. If this is the case then it could be more expensive to repay the loan early. You need to find out how much it will cost you to repay the loan at the current rate of interest and see how the fee compares to that. If the fee is less then you will be saving money. If it is more then you will not, but if interest rates go up then it could be worth paying it off early. If this is the case then it could be worth putting some money aside ready to repay the loan if the interest rates get so high that it is then worth it.
So, if you are a borrower then you can really take advantage of low interest rates. You can either use the low rates to borrow at a low price. As long as you are borrowing to buy things which will make you better off, then this can be well worth it. You could find that you will be able to get things a lot more cheaply than you could if you had to borrow when the rates were high. You will also generally have more money due to low interest payments on loans you already have and this could mean that you will be able to afford to repay the loan early and save even more money.
Unfortunately, if you are a saver then you will not be able to take advantage of low rates. You should make sure that you are saving at the best possible rate but switching to higher interest accounts will not make a huge difference because the rates are so low anyway. However, it can be worth considering tying your money up in fixed rate products or in notice accounts so that you can get a better rate of interest.