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The cheapest personal loans

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Last updated on

29 July 2014

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There's a price war going on so here's a round-up of the best personal loans on the market right now.

If you want to borrow a larger sum of money, a personal loan is a good option for many people. The good news is there is loads of competition in the personal loan market right now and this means rates on the top loans are falling.

Here's our guide to the cheapest rates right now.

A reminder of how personal loans work

These loans are normally for one to five years and aren’t secured against your home or any other asset.

It's quite a flexible market and you can typically choose between a small loan of £5,000-£7,499, a medium loan of £7,500-£15,000, or a large loan of more than £15,000 although the cheapest rates can be found in the medium range.

Medium loans (£7,500-£15,000)

If you're an HSBC or First Direct current account customer, you could get a rate of 3.9% or 4% respectively.

Otherwise, the best rate of just 4% comes from peer-to-peer lender Zopa.

Here are the best buys using the example of borrowing £10,000 over five years.

Loan

Representative APR

Monthly repayment

Total amount repayable

HSBC Existing Customer Personal Loan*

3.9%

£183.40

£11,005.20

First Direct Personal Loan**

4%

£183.84

£11,030.40

Zopa A* Loan

4%

£184.05

£11,043.00

Sainsbury’s Standard Loan

4.1%

£184.28

£11,056.80

Hitachi Personal Loan

4.1%

£184.28

£11,056.80

Tesco Bank Personal Loan

4.1%

£184.28

£11,056.80

M&S Bank Personal Loan***

4.1%

£184.28

£11,056.80

Cahoot Personal Loan

4.2%

£184.89

£11,093.40

*Available to HSBC current account customers only

**Available to 1st Account customers only

***Available to existing bank customers only

Small loans (£5,000-£7,499)

The smallest loans on offer, of between £5,000 and £7,499, are also the most expensive.

A number of lenders currently offer a rate of 5.4% when you pay it off over a five-year term, but if you can drop down to a three-year term you could get a rate of 5.3% from Sainsbury’s Bank and Lending Works.

Here are the best buys using the example of £5,000 repaid over five years.

Loan

Representative APR

Monthly repayment

Total amount repayable

Sainsbury's Bank Standard Loan

5.4%

£94.98

£5,698.60

Hitachi Personal Loan

5.4%

£94.98

£5,698.60

Zopa Personal Loan

5.4%

£95.09

£5,705.11

Clydesdale Bank Online Personal Loan

5.4%

£95.28

£5,716.80

Yorkshire Bank Online Personal Loan

5.4%

£95.28

£5,716.80

M&S Bank Personal Loan*

5.5%

£95.20

£5,712.00

*Available to existing bank customers only

Large loans (more than £15,000)

First Direct is massively ahead of the pack when it comes to larger loans, but you'll need to be a 1st Account customer to be in with a chance of a 4% loan. Having said that, the account is one of the best out there in terms of customer service and also offers a £100 joining bonus.

If you don't want to join First Direct, then there's plenty of competition starting at 5.7%.

Here are the best rates you can find on a loan of £17,500, taken out over a five-year term.

Loan

Representative APR

Monthly repayment

Total amount repayable

First Direct Personal Loan*

4%

£321.72

£19,303.48

Hitachi Personal Finance

5.7%

£334.73

£20,083.80

Clydesdale Bank Personal Loan

5.7%

£334.73

£20,083.80

Yorkshire Bank Personal Loan

5.7%

£334.73

£20,083.80

AA Personal Loan

5.8%

£335.49

£20,129.40

Zopa Personal Loan

5.8%

£335.85

£20,151.00

*Available to 1st Account customers only

Not for everyone

All of the loans in the above tables offer attractive rates but not everyone will be offered loans at these rates. Lenders are only obliged to offer their best rates to 51% of successful applicants.

If you have a history of borrowing money and then paying off your debts on schedule, there’s a good chance that you’ll be able to borrow at a decent rate. But if you’ve never borrowed money before or you’ve been late with repayments, you may not be able to get the best deals.

Personal loan alternatives

It’s also possible that you may be able to borrow even more cheaply.

If you have an excellent credit rating, you may be able to get a 0% new purchase credit card. With one of these cards you can make a big purchase and not pay any interest on the resulting debt for as long as 19 months.

The current market leader in this category is Tesco Clubcard for Purchases card, while the Santander Purchase card andSantander 123 credit card both offer an 18-month 0% period. 

Let us imagine you want to buy some new furniture for £1,500. If you use these cards for the purchase, you won’t have to pay any interest for at least a year and a half. That’s as long as you make your minimum repayments each month.

Just remember that you may be offered a fairly low credit limit – if you’re only offered a £2,000 credit limit, you may want to go for a personal loan where you can borrow more.

Do you need to borrow?

Whatever kind of loan you go for, first ask yourself first whether you actually need to borrow the money. Even if you’re paying a super-low interest rate, you’re still giving up money on interest payments which you’ll never see again.

The prudent approach is to cut your spending and build up your savings, if you can. If you follow that approach you’ll be richer in the long-run.

But if you’re determined to borrow, a personal loan may well be the best option for you.

Compare personal loan rates

This article is regularly updated with the latest rates

More on loans and borrowing

Top tips for cheap car loans

Five ways to get a great loan

Secured loans: pros and cons

The best 0% purchase credit cards

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