Great news - banks cut cost of personal loans

Advice from the experts at MoneySuperMarket

Decision Time

If you need a personal loan, perhaps to pay for a car or cover the cost of a wedding, the good news is that the cost of borrowing a big lump sum has never been cheaper.
According to research by comparison site MoneySuperMarket, the average annual percentage rate on a loan of £10,000 over five years is currently just 3.58% APR representative, down from 4.18% APR representative last year.

A borrower with a loan of this size would pay £288 less in interest over the term if they took out their loan last year compared to now.

Loan war rages on

Loan rates have fallen consistently since 2011, when the average rate on the same £10,000 loan stood at 6.78% APR representative. Rates have almost halved since then, and there's no sign that providers will end their loan war any time soon.

M&S was one of the first to throw down the gauntlet at the start of the year, with its rock-bottom rate of just 3.3% APR representative on a £10,000 loan, down from 3.5% APR representative in December last year.

Kevin Mountford, head of banking at MoneySuperMarket said: "The current competition in the personal loans market is good news for consumers, who are being offered some of the best ever deals.

"Rates have plummeted in recent years and we're still continuing to see them fall this year. At the same time consumers must examine their finances responsibly before applying, to ensure they can afford the monthly repayments over the course of the term."

Borrow less, pay more

Loan rates vary depending on how much you borrow. They are usually tiered and, as a general rule, the most competitive rates apply to loans between £7,500 and £15,000.

If you want to borrow a smaller amount, rates tend to be higher. For example, M&S would charge 4.5% APR representative if you want to borrow £5,000, rising to a massive 18.6% APR representative if you want to borrow £1,000.

If you are looking to borrow less than £10,000, then Sainsbury's currently offers some of the lowest rates, charging 7.4% APR representative on loans between £3,000 and £4,999 and 4.2% APR representative if you're borrowing between £5,000 and £7,499.

These rates only apply if you're a Nectar cardholder and you choose a loan term between one and three years. If you don't have a Nectar card or want a longer loan term, you'll pay marginally higher rates of 7.5% APR representative and 4.3% APR representative respectively.

Always check the rate in the next tier up from the amount you are borrowing. If it is much lower, and you want to borrow an amount that is very near to where the next tier starts, do your sums to make sure it wouldn't actually cost you less to borrow a little bit more.

Decide on your term

If you're considering taking out a loan, think carefully about how long you'll need to pay off what you owe.

Monthly payments will be cheaper the longer the loan term you choose, but remember that the overall cost will be more expensive because you'll be paying more interest.

Check your credit score first

Low loan rates may be tempting, but when it comes to advertised loan rates, remember that the rate you see isn't necessarily the rate you'll get.

Up to 50% of borrowers who apply for loans may be offered a higher rate than the one advertised, with the best rates only offered to those with impeccable credit scores.

It's therefore a good idea to check your credit score with one of the credit reference agencies such as Experian, CallCredit or Equifax before you apply for a loan so you can see how likely you are to be accepted.

Remember that if your credit score isn't up to scratch and your application is turned down, this can further damage your rating.

Please note: any rates or deals mentioned in this article were available at the time of writing.

Credit limits and interest rates may vary. All Loans are subject to status and terms and conditions. Over 18's, UK residents only. Terms and conditions apply. Please see MoneySuperMarket for further information.

MoneySuperMarket is a credit broker – this means we'll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a commission by the lenders – though the size of that payment doesn't affect how we show products to customers. is an appointed representative of Financial Group Limited, which is authorised and regulated by the Financial Conduct Authority (FCA FRN 303190). Financial Group Limited, registered in England

No. 3157344.

Registered Office: MoneySuperMarket House, St Davids Park, Ewloe, Flintshire, CH5 3UZ.