Does borrowing more get me a lower rate?

2 min read

Lower %Often on bigger facilities

More total £You still pay for the extra

Borrow to needNot to the limit

Evidence helpsBigger deals, more scrutiny

Why bigger can mean a lower rate

A lender's fixed costs of arranging and administering a loan are broadly similar whether it lends £10,000 or £100,000. Spread across a larger sum, those costs are a smaller percentage, so the rate can come down. Larger applications also tend to come with fuller documentation and more established businesses, which reduces the lender's uncertainty and therefore the margin. This is why the rate on a small facility can look high next to a larger one.

The trap of borrowing to the limit

A lower percentage rate does not mean a bigger loan is cheaper for you. Interest is charged on the amount you actually borrow, so borrowing £80,000 at a slightly lower rate can easily cost more in pounds than borrowing the £50,000 you actually need at a marginally higher one. The rate is a percentage; your bill is a sum of money. Borrow to your genuine need, not to whatever limit is offered.

Work out the real need first with the affordability calculator.

Getting the balance right

There is a sensible middle ground. Do not artificially shrink a facility to chase a headline rate if it leaves you underfunded and needing a second, more expensive loan later. Equally, do not inflate it for a marginal rate saving. Size the facility to the project or gap, add a modest buffer if cash flow is tight, and compare total repayable at that amount across lenders.

See how much should I borrow, then apply for the right amount.

Frequently asked questions

Should I borrow extra just to get the better rate?

No. Interest is paid on what you borrow, so taking more than you need to reach a lower rate band almost always costs more in total, not less. The only time it makes sense to round up is a genuine, near-term need you would otherwise have to fund separately at a higher cost.

Is there a point where the rate stops improving?

Yes. The rate benefit of size tapers off — most of the fixed-cost saving is captured by the time you reach a mid-sized facility, and very large loans are priced mainly on risk and security rather than on spreading fixed costs. Beyond a certain point, borrowing more brings little rate benefit and a lot more total interest.