The cheapest personal loans

lovemoney staff
by Lovemoney Staff lovemoney staff on 15 April 2014  |  Comments 5 comments

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

The cheapest personal loans

If you want to borrow a larger sum of money, a personal loan is a good option for many people.

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.

Personal loans have three main advantages:

1. Low rates

Interest rates on personal loans are usually low as long as you have a good credit rating. If your credit rating isn’t so good, you’ll either be offered a loan with a higher interest rate or no loan at all.

2. The loan isn’t secured against your home

A personal loan isn’t secured against your home. That means it’s very hard for the lender to force a sale of your home if you fall behind on your loan repayments. It’s much easier for the lender to kick you out of your home if the loan is secured.

3. Fixed interest rates

Interest rates on most personal loans are fixed. This means the rate you pay won’t change at all during the duration of your loan. That’s a good thing as it gives you security and enables you to plan your finances years in advance.

Overpayments

Personal loans have traditionally been pretty inflexible and many come with penalty fees if you want to pay off the loan early.

Before you sign up make sure you read the small print carefully and understand the terms and conditions to avoid getting locked into a long-term deal or penalised for ending the loan early.

Rates are falling

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. So make sure you shop around. And if you're an existing customer of the likes of Barclays and First Direct, you could take advantage of discounted rates for existing customers.

Small loans (£5,000-£7,499)

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

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

Loan

Representative APR

Monthly repayment

Total amount repayable

Hitachi Personal Loan

5.6%

£95.42

£5,725.20

AA Personal Loan

5.7%

£95.64

£5,738.40

Tesco Bank Personal Loan

5.7%

£95.64

£5,738.40

Sainsbury’s Bank Shopper Standard Loan

5.7%

£95.64

£5,738.40

Clydesdale Bank Personal Loan

5.8%

£95.86

£5,751.60

Yorkshire Bank Personal Loan

5.8%

£95.86

£5,751.60

Medium loans (£7,500-£15,000)

The best rate available on medium-sized loans also come from sister banks Clydesdale Bank and Yorkshire Bank. They're offering a record low rate of 4.4% on borrowing between £7,500 and £15,000 over three to five years.

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

Loan

Representative APR

Monthly repayment

Total amount repayable

Clydesdale Bank Personal Loan

4.4%

£185.78

£11,146.80

Yorkshire Bank Personal Loan

4.4%

£185.78

£11,146.80

Sainsbury’s Shopper Personal Loan

4.5%

£186.02

£11,161.20

Tesco Bank Personal Loan

4.5%

£186.02

£11,161.20

Hitachi Personal Loan

4.5%

£186.02

£11,161.20

Santander Personal Loan

4.5%

£186.02

£11,161.20

Derbyshire BS Personal Loan

4.6%

£186.46

£11,187.60

AA Personal Loan

4.6%

£186.46

£11,187.60

Large loans (more than £15,000)

With the largest loans two of the best rates are reserved for existing customers. But there's still plenty of great choice.

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

Barclays Personal Loan*

5.7%

£335.10

£20,106

First Direct Personal Loan**

5.7%

£335.10

£20,106

AA Personal Loan

5.8%

£335.49

£20,129.40

Clydesdale Bank Personal Loan

5.8%

£335.49

£20,129.40

Yorkshire Bank Personal Loan

5.8%

£335.49

£20,129.40

*Only available to those who have held a Barclays current account for seven months and deposit £1,000 a month

**Only available to existing First Direct customers

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 18 months.

The current market leaders in this category are the Tesco Clubcard for Purchases card, Santander Purchase card and Santander 123 credit card, which all offer an 18-month 0% period. 

Let us imagine you want to buy some new furniture for £1,500. If you use the Tesco or Santander cards for these purchases, you won’t have to pay any interest for 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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Comments (5)

  • jstashh
    Love rating 0
    jstashh said

    katchytitle

    In addition to Simon Ward's comment,...you say: "This is a near two year loan at 3%+ forward cost for 2 years). Obviously you can do this again to extend the loan period and pay another 3% on the left over principal loan amount. Overall, this should be a 3.8 year loan at least for around 4-5% max." Maybe I misunderstand but (i) there is no guarantee of rollover and (ii) 2 years hence, no guarantee of the rates being as at present

    Report on 11 April 2014  |  Love thisLove  0 loves
  • katchytitle
    Love rating 0
    katchytitle said

    Hi Simon and jstashh - to answer your points:

    1. "you can't balance transfer money to another card and then get the money put into your bank account"...

    ummm yes you can - think outside the box - I've done this many times. What's a credit card company going to say? "No, you can't have your money"? Credit cards can be in credit....and you can ask for your money back. Banks don't talk to each other...I should also point out that if you are a long standing customer and speak to them on the phone they do lower their bank transfer fee or in the old days waive it all together.

    2. "yes, cheaper than a loan for this size but if you want to make a few big purchases you'd be better off " - I guess this depends on your credit limit. Having done what I suggested a few times credit card companies have raised my credit to the size of the loans offered. IF not simply use two cards

    3. "no cards offer "free appliances e.g tablet computers etc" - otherwise we'd all have them."

    Money is used to buy these things...not sure what your point is here...if you want a "free" tablet buy a TV or a mobile phone contract Samsung has been doing this for a while.

    4. (i) there is no guarantee of rollover and (ii) 2 years hence, no guarantee of the rates being as at present

    (i) Agreed - in life there are no guarantees. Interest is after all a function of risk. With rates for personal loans so low and with new government legislation that allows you to pay off the loan at anytime/ overpay and reduce your interest burden my scheme has become less applicable. In 2006/7 the disparity between loans and 0% credit was much larger.

    (ii) The banks have opened the 0% credit card genie and they will struggle to put it back in the box. People who pay off credit this way are subsidised by the millions that don't understand interest and just keep paying the minimum balance. The same is true for "free" banking current accounts - its a subsided model paid for by the poor and under educated. But in the UK at least, banks cannot stop it without government stepping in. Any bank that mandates charging for current accounts will lose all its customers immediately. It can be argued that free banking is the root of all the misselling scandals the banks have had...unable to charge for this service they need to cross sell more and more products to improve their profit margins.

    Report on 17 April 2014  |  Love thisLove  0 loves

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