Interest rates have been low for a long time and it is therefore not surprising that many borrowers worry about what might happen if the rates go up. Anyone with a mortgage, credit card or any other type of loan from a direct lender is likely to worry that they may suddenly find themselves in a situation where they will not be able to afford the debt repayments. It is worth remembering that interest rate increases have been very slow and this is likely to be how they will continue. However, there is still no harm in doing what you can to keep your debts as cheap as possible.
Compare and switch
It is wise to regularly compare lenders and see whether there are any that are significantly cheaper than others. There are many available and it might be that you can switch to another one and save a lot of money. You do need to be careful with this though. Make sure that you take note of all of the costs involved. You may find that you will be charged a fee for leaving your current lender. You need to be aware of how much this is so that you can allow for this when you are looking to see if other lenders will be cheaper. There may also be an administration fee when you take out a new loan with a different lender so check this as well.
It is also important to look at any other costs. For example, if you miss a repayment how much will you be charged? This will vary a lot between lenders and even if you feel that you will easily manage every repayment it is important to have an idea of what the costs might be so that you are well prepared. This figure may also help you to more easily pick between two lenders that seem really similar otherwise.
Consider fixed rates
It is worth thinking about whether it might be worth going for a fixed rate loan if you have not already. These then will not change when the interest rate goes up. This can really help to protect you from rises in rates as you will not have to pa any more money when the base rate goes up.
It is worth being cautious with this though. The banks tend to set the rates so that they do not lose out. This means that it might be quite a bit higher than their variable rate. If rates do not rise then you will end up paying more. However, you may prefer the security of knowing exactly how much you will need to repay each month. It is all very personal and will depend on your feelings towards debt and how well you will cope if rates do go up.
Pay off debts early
Another way to help keep the cost of rate rises down is to repay some or all of the loan. Without a loan or by owing less money it will mean that your interest payments will be lower and therefore you will not be paying so much so if the rates go up you will not struggle to pay the interest. You will need to check though as to whether there is an early redemption fee when you repay the loan early. This fee is often equivalent to a few months interest and so it depends on how early you repay the loan as to whether it is worth paying it or not.
Paying off debts could seem like a mammoth task but it does not have to be. If you slowly whittle it down then you could find that it will disappear quicker than you imagine. As you owe less and less your interest payments will go down and you will be able to use that money that you would have paid in interest to pay back even more of the loan. This means that you can repay it faster and faster and so although you may feel that things are slow to start with you will start to notice the money that you owe shrinking quickly as you pay off more and more.
So, if you want to completely protect yourself from rate rises, you will need to repay all of your debts. Then if the interest rates go up it will have no impact on you whatsoever. If this is not possible then try to reduce your debts as much as you can, but work out whether it will cost you more to repay then, in fees compared with what you will save in interest. If you cannot completely repay them, then see if you can swap to a cheaper lender and also consider fixing the rate so that raises in rates will have no impact on you.