Personal loan rates slashed

Updated: 

picture of lovely girl with big piggy bank

There's a price war going on in the personal loan market right now.

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.


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 HSBC, M&S Bank, First Direct or Lloyds Bank/Bank of Scotland/TSB, you could take advantage of discounted rates for 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.

Zopa currently offers the cheapest loan in this range of 5.9%. Zopa is one of a growing number of peer-to-peer websites, where individual lenders are matched with people looking to borrow. These sites are becoming increasingly popular and part of the attraction is that you're cutting out the mainstream banks from the process.

Just be aware that Zopa has a reputation for turning down a large number of applications, so if your credit rating isn't great you might want to look elsewhere.

Here are the best buys for £5,000 repaid over five years.

Lender

Representative APR

Total amount repayable

Zopa

5.9%

£5,770.80

Santander Personal Loan6.0%£5,777.40
Sainsbury's Bank Shopper Standard Loan6.1%£5,790.60

M&S Bank Cardholder Loan*

6.1%

£5,790.60

M&S Bank Personal Loan

6.2%

£5,803.80

Hitachi Personal Finance Loan

6.2%

£5,803.80



*M&S Bank customers only


Medium loans (£7,500-£15,000)
The cheapest rate available for medium-term loans is jointly held by Zopa and Sainsbury's Bank at 4.5%. The Sainsbury's Bank rate is part of a series of reductions on loan rates until the end of January but has to be repaid within three years. There are no such restrictions on the Zopa rate.

Here are the best buys for borrowing £10,000 over five years.

Loan

Representative APR

Total amount repayable (TAR)

Zopa Personal Loan4.5%£11,226.60
Sainsbury's Bank Shopper Standard Loan4.6%£11,187.60
Clydesdale Bank Online Personal Loan4.6%£11,187.60
Yorkshire Bank Online Personal Loan4.6%£11,187.60

M&S Bank Cardholder Loan*

4.7%

£11,213.40

M&S Bank Personal Loan

4.8%

£11,239.80

Tesco Bank Personal Loan

4.8%

£11,239.80

HSBC Personal Loan**

4.8%

£11,239.80
AA Member Loan***4.8%£11,239.80

*M&S Bank customers only
**HSBC current account customers only

***AA members only


Large loans (more than £15,000)
Four of the six cheapest rates in this range are only offered by banks to their existing customers.

Here's how rates look if you want to borrow £17,500 over five years.

Lender

Representative APR

Total amount repayable

First Direct existing customer*

5.1%

£19,807.36

Barclays Barclayloan**

5.9%

£20,176

Lloyds Bank Personal Loan***

6.4%

£20,406.83

Bank of Scotland Personal Loan***

6.4%

£20,406.83

TSB Personal Loan***

6.4%

£20,406.83

Yorkshire Bank Online Personal Loan

6.6%

£20,500

Clydesdale Bank Online Personal Loan

6.6%

£20,500

M&S Bank Cardholder Loan****

6.7%

£20,545.80

Zopa Personal Loan6.7%£20,545.80

M&S Bank Personal Loan

6.8%

£20,592

Sainsbury's Bank Standard Loan

6.8%

£20,592

Tesco Bank Personal Loan

6.8%

£20,592


*First Direct 1st account customers only
**Barclays current account customers only (must have had account for minimum of seven months and have deposited minimum of £1,000 a month)
***Lloyds Bank/Bank of Scotland/TSB current account customers only
****M&S Bank 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 18 months.

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

Let us imagine you want to buy some new furniture for £1,500. If you use the Santander or Tesco card 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.

Compare 0% purchase cards

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

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