Many people who have a loan will worry about the threat of rising interest rates. When rates are low, there is a higher chance that they will rise and if they are already high a rise is likely to have more of an impact in monetary terms. It can be a source of worry but there are things that you can do in order to protect yourself against interest rate rises.
Find the best loan
It is worth taking a good look at the loans available to see whether you will be able to swap to a cheaper one. Loans are very competitive and you will often find that there is a lender that will be cheaper than the one that you are with. You can use a comparison website to get some ideas about this but remember that not all companies are on these sites, so it may be worth doing some other research yourself as well. You will need to be careful that your loan company does not charge you too much money for you to swap to another lender. Some may have very high charges, some smaller ones and some none at all. Check with the lender and calculate whether it is still worth switching or whether you will be better off staying with them.
Consider fixed rates
If you are switching then look at fixed rate as well as variable rate loans. If you already have a fixed rate, then you will be protected against rate increases anyway. However, if you do not, then you might want to consider switching to one. There is an element of risk as a fixed rate tends to be higher than a variable rate and so only if interest rates go up will you benefit and even then they will have to go up quite a bit. However, you will have the peace of mind of knowing exactly how much you will need to pay for each repayment.
Pay off the loan more
If you pay more off the loan than you have to, then you will be paying less in interest overall and you may be able to get the loan paid off sooner. This will enable you to be paying less interest as there will be less money to be charged interest on. Therefore, if the rates do go up, the amount that you have to pay may not. Obviously, you will again need to check to see whether there is a charge associated with paying back extra money and see whether it will still be a cost-effective thing to do.
Increase your income
If you increase how much you earn then this can help you in two ways. It will mean that you will be able to afford to pay extra off the loan if this is something that you choose to do and it will help you to be able to afford the increase in cost of the interest. Obviously, this is easier said than done, but you might be able to take on some extra hours at work, take on an extra job, find some freelance work, so some tempting or some online work. There are lots of ways that you could try to earn some money and some will not even take you away from your home.
Reduce your spending
If you are struggling to pay your loan or are only just managing to do it, then it could be wise to think about whether you can cut costs elsewhere to free up money so that you are more easily able to do it. This could mean that you compare prices on things that you buy and get cheaper items or that you shop at cheaper shops. You might even want to consider buying less things so that you reduce your spending that way. Trying to find cheaper retailers could also be useful. It can be wise to think about every purchase and ask yourself whether you really need the item of not. Then look at different places that sell it and see where it is cheapest. Also look at different brands and compare those. This can take time but once you get used to doing it you can make significant savings particularly if you do it with everything that you buy.
So, you should not worry about interest rate rises but make sure that you are prepared for them. As you can see there are things that you can do so that they should not be such a big worry for you. Think about which options might be the best ones for you or whether there are other approaches that you might prefer to take. It might be that you want to try out several things and see which works the best for you.