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The cheapest personal loans

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Last updated on

25 March 2015

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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

Personal loans are normally offered over 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.

The cheapest rates can be found in the medium range.

Medium loans

Three lenders are offering deals at 3.6% APR, though only peer-to-peer lender Zopa doesn’t restrict it to existing lenders.

Sainsbury’s Bank is also offering the same 3.6% rate in this range but only over a shorter term of one to three years. If you need between four and five years the rate rises to 3.7%.

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

Loan

Representative APR

Monthly repayment

Total amount repayable

Zopa A* Loan

3.6%

£182.09

£10,925.40

First Direct Personal Loan*

3.6%

£182.28

£10,936.73

Nationwide Personal Loan **

3.6%

£182.28

£10,936.73

Sainsbury’s Bank Standard Loan

3.7%

£182.54

£10,952.40

M&S Bank M&S Personal Loan

3.8%

£182.97

£10,978.20

M&S Bank M&S Cardholder Loan 

3.8%

£182.97

£10,978.20

Hitachi Personal Loan

3.8%

£182.97

£10,978.20

Tesco Bank Personal Loan

3.8%

£182.97

£10,978.20

AA Personal Loan***

3.9%

£183.41

£11,004.60

Nationwide Personal Loan

3.9%

£183.41

£11.004.60

HSBC Existing Customer Personal Loan****

3.9%

£183.41

£11,004.60

*Available to 1st Account customers only

** Available to Nationwide main current account customers only

***Exclusive rate for comparison websites

****Available to HSBC current account 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, although rates have now fallen below 5%.

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

Loan

Representative APR

Monthly repayment

Total amount repayable

Zopa A* Personal Loan

4.6%

£93.24

£5,594.40

Santander 123 World Loan*

4.64%

£93.32

£5,599.20

Cahoot Low Rate Personal Loan

4.64%

£93.32

£5,599.20

Clydesdale Bank Personal Loan

4.7%

£93.33

£5,607.00

Yorkshire Bank Personal Loan

4.7%

£93.33

£5,607.00

Hitachi Personal Loan

4.8%

£93.66

£5,619.60

Sainsbury’s Personal Loan

4.9%

£93.88

£5,632.80

First Direct Personal Loan**

4.9%

£93.97

£5,638.25

M&S Bank M&S Cardholder Loan

5.1%

£ 94.32

£5,659.20

Santander Personal Loan

5.14%

£94.41

£5,664.60

AA Personal Loan***

5.2%

£94.54

£5,672.40

M&S Bank M&S Personal Loan

5.2%

£94.54

£5,672.40

*Available to 123 and Select customers only

**Available to 1st Account customers only

***Exclusive rate for comparison websites

Large loans (more than £15,000)

As you can see, First Direct is the clear leader here, though you do have to take out its 1st Account in order to qualify. That’s not the biggest hardship when you consider it wins every customer service award going, and pays you £100 when you open the account.

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*

3.6%

£318.99

£19,139.28

Zopa Personal Loan

4.1%

£322.55

£19,353

Santander 123 World Loan**

4.2%

£323.55

£19,413.00

Cahoot Low Rate Personal Loan

4.24%

£323.55

£19,413.00

Bank of Scotland Flexible Loan***

4.4%

£324.77

£19,486.20

Lloyds Bank Flexible Loan***

4.4%

£324.77

£19,486.20

Clydesdale Bank Personal Loan

4.7%

£326.67

£19,600.20

Santander Personal Loan

4.74%

£327.37

£19,642.20

Yorkshire Bank Personal Loan

4.75%

£327.44

£19,646.40

AA Personal Loan****

4.9%

£328.59

£19,715.40

TSB Loan***

4.9%

£328.95

£19,737.00

*Available to 1st Account customers only

**Available to 123 and Select customers only

***Available to existing customers only

****Exclusive rate for comparison websites

Larger loans (more than £25,000)

Sainsbury's Bank is the only provider to offer personal loans over £25,000 to both new and existing customers.

The Sainsbury’s Bank Standard Loan is available on borrowing between £25,001 and £35,000 at a rate of 6.9% APR when taken out over two to five years. Those with a Nectar card can get access to a lower rate of 6.8% APR if they are prepared to borrow over two to three years.

No other personal loan provider offers loans above £25,000, apart from Barclays.

Barclays offers personal loans of up to £50,000, but only to existing customers who hold a current account, savings account, Barclaycard or mortgage product.

The bank has a representative APR of 6.9% on loans from £15,100 up to £25,000 and 7.9% on loans from £25,100 to £50,000.

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 23 months.

The Santander 123 credit card is the market leader, but charges an annual fee of £24, while the current fee-free market leaders here are the Halifax Purchase credit card, the Clydesdale Bank Gold MasterCard and the Yorkshire Bank Gold MasterCard. For a full rundown, check out The best 0% purchase credit cards.

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.

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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