Five top places to get a loan

by Rachel Wait on 12 August 2010  |  3 comments
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With more and more banks refusing to lend to new customers, we reveal the best places to get a personal loan...

If you need some extra cash, chances are you might be considering taking out a personal loan. Although loans shouldn’t be taken out willy-nilly, if you do have a genuinely good reason to borrow between £7,500 and £15,000, a personal loan can be a sensible option.

However, according to new research, thanks to the recession, only five out of 26 high street lenders are now offering loans to new customers. In comparison, back in October 2008, 88% of lenders (23 out of the 26) were offering loans to new borrowers.

The tables below highlight this more clearly:

October 2008

Source: The Lending Wizard

June 2010

Source: The Lending Wizard

As the tables show, unfortunately, the credit crunch has had a significant impact on lending. In a bid to reduce risk, lenders are preferring to limit their lending to existing customers only as this way, they have a greater understanding of how financially reliable these customers are.

But what does that mean for you?

Well, if you are hoping to take out a personal loan, it simply means that the options available to you are far more limited than they were a couple of years ago. And as a result, you may not be able to apply for the most competitive loan on the market.

For example, right now, the market-leading loan is the Nationwide Existing Customer Personal Loan which offers a very competitive interest rate of 7.7%. However, to apply, you need to be an existing Nationwide customer.

But if you're not a Nationwide customer, the good news is, you won't lose out significantly. Fortunately, both the Sainsbury’s Finance Nectar Cardholder Personal Loan and the Alliance & Leicester Personal Loan currently offer an interest rate of 7.8% and both loans are available to new customers. Bear in mind that you will need a Nectar card for the Sainsbury’s loan but that’s free (and easy) to apply for instore or on this website.

You don’t need to be an existing customer to enjoy the Tesco Bank Personal Loan either. This loan also offers a competitive interest rate of 7.9%. And finally, the AA Personal Loan also allows new customers to apply – although it offers a slightly higher rate of 8.9%.

So although the options are more limited, luckily, you don’t have to lose out by much if you are applying for a loan as a new customer.

A loan with a difference

If none of the above options suits your needs, there is an alternative. And that’s Zopa.

Zopa is a social lending site which matches potential investors with borrowers. Because it cuts out the middleman, Zopa allows borrowers to get better interest rates than on the high street, while lenders can make a better return than they would through a traditional savings account.

Bear in mind, however, you will still need a good credit rating to qualify for a loan.

You can find out more about Zopa in How to get a loan when the bank says no.

Other ways to borrow

Although a personal loan might appear to be a life-saver, if you need to borrow less than £5,000 and you have a good credit record, there are other ways of borrowing, without taking out a loan.

For a start, you could consider using a 0% on new purchases credit card to pay for whatever it is you need the cash for. Right now, the best 0% on new purchases card on the market is the Tesco Clubcard Credit Card which offers 13 months interest-free on all purchases. So that means you’ve got over a year to pay off your debt without worrying about the interest stacking up.

This can work out to be a far cheaper way to borrow. However, you need to ensure you pay off the balance in full before the end of that 13 month period. Otherwise you’ll be hit with an interest rate of 16.9%.

If you’re not going to be able to pay it off, you will need to move your debt onto a 0% balance transfer credit card – such as the NatWest Platinum Credit Card which offers 16 months interest-free on all balance transfers. Bear in mind you will have to pay a 2.9% transfer fee.

Alternatively, if dipping into your overdraft for a while would help - instead of taking out a loan - you could consider applying for a current account with an interest-free overdraft.

The Santander Preferred Overdraft Rate Account offers an interest-free overdraft for 12 months on overdrafts up to £5,000. So this gives you a year to use that spare £5,000 for whatever you need it for. Just make sure you’re back in the black before the 12 months comes to an end as after that period, the interest rate will jump to 12.9% EAR. Bear in mind that to qualify for the Santander account, you must pay in at least £1,000 a month.

You can find out more about the best overdraft rates in Five ways to get an overdraft for free.

 More: Six ways to get £100 for free | Five things you’re wasting your money on

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