Loans have never been as cheap as they are right now. A price war between competitive lenders means that rates have plummeted over the past couple of years.
But even the lowest interest rate loans can have hidden costs. Before you pick the type of loan, it's crucial to decide one thing.
The formula's simple. Borrow as little as possible, repay as quickly as possible. To avoid complications, always base your borrowing on what you can comfortably afford to repay (preferably after doing a budget), as borrowing too much can cause debts to spiral out of control.
Beware - while borrowing over a longer period spreads the debts and decreases monthly repayments, it massively increases the interest you'll repay. Borrow £10,000 at 7% over three years and the interest cost is £1,100. Borrow the same over 10 years, and it's £3,900.
Beware 'representative' rates
All advertised loan and credit card APRs are 'representative'. This means only 51% of successful applicants have to get those rates. So, up to 49% may end up with a more expensive loan than they applied for (if they get accepted at all).
Sadly, the only real way to find out whether you'll get the advertised rate is to apply, though this leaves a search on your credit file, which can hit your ability to get credit in future.
Best Buys Personal loans
If you're looking for a loan, check out the best buy rates below. We list loans by 'bands' as the rate you could get differs depending on how much you want to borrow. Plus, if you want to check if you'll get the loan before applying, use our eligibility calculator to see your chances.
The best buys are below, but there's the chance to undercut some of these rates by 0.5 percentage points if you're a Nationwide current account customer or successfully apply for one with the lender. Read a full Nationwide how-to.
Cheapest loans under £5,000
Cheapest loans over £5,000
Special trick for Nationwide customers - 3% loans?
If you hold a current account/or successfully apply for one with Nationwide, it promises to undercut the best loan offer you get by 0.5 percentage points, meaning, for example, a 3.5% loan (the current best-buy) could become 3%. This is how it works...
How do you get the deal?
To get the deal, you must first apply and get accepted for a loan through any bank or building society (including Hitachi, but not including peer-to-peer lenders such as Zopa).
Then, apply for a Nationwide loan - but you'll need proof of acceptance for the other loan. If Nationwide accepts you, it will then offer you a rate which is 0.5 percentage points lower than your initial offer (it says it won't accept you for the loan, then offer a higher rate).
It's easiest to apply in branch for this, as you'll need to show or send your proof of acceptance for the other loan to qualify.
You can apply by phone or online, though you'll need to send your proof of the other offer by post before the loan is issued.
Which current accounts qualify?
You can get the loan if you have/or successfully apply for a FlexDirect or FlexPlus account. The FlexDirect gives 5% interest for the first year on amounts in the account up to £2,500, though you'll need to pay in £1,000/month to get this. The FlexPlus has a £10/month fee, but comes with free travel insurance, mobile insurance and breakdown cover.
You can also get it if you have a FlexAccount or a FlexOne account (if you're 18 or over), though with these accounts you need to have either been paying in £750+ a month for the last three months, or have completed an account switch in the last four months.
All of the linked accounts are best buys in their own right, and are among our top bank account picks. Read full details and eligibility criteria for Best Bank Accounts.
What if I'm not a Nationwide customer but still want this offer?
You can open (or switch to) a current account with Nationwide at the same time as applying for the loan. But be prepared for the credit score hit you'll take.
Will this hurt my credit score?
The impact on your credit score will differ between new and existing customers.
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New customers. To switch banks, as well as apply for two loans, you'll have done three credit applications within a short space of time (one for the initial loan, one for the new current account, and one for the Nationwide loan)
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Existing customers. You may only have one application for the original loan on your credit file, though this will depend on whether Nationwide has already 'pre-approved' you for a loan. Main current account customers may already be pre-approved for a certain amount, and if the amount you're borrowing is under this, Nationwide says it won't do a hard search (though it may still do a soft search). Your one application will come from the non-Nationwide loan you applied for.
If you're applying for a mortgage, or other big credit soon, for safety, it's best to leave a year between big applications, as this is how long applications stay on your file.
See Credit Scores for more information.
Is it worth it?
You need to decide whether the added hassle of making the extra credit application's worth it. On a three-year, £10,000 loan, you'd pay around £550 in interest over the term of the loan with the best buy 3.5% loan. If Nationwide then offered you a 3% rate, it'd cut £80 off the interest cost of your loan.
Use the loans calculator to see how much you could save.
It might be cheaper to borrow more
It's worth being aware of this when borrowing close to one of the rate boundaries above - which are set by lenders.
As an extreme example, borrow £4,999 at 7.4% over five years and you repay £100 a month £5,996 over the full term. Borrow just £1 more and the rate is 4.4%, so you only repay £93 monthly £5,580 over the term, £416 less.
Therefore best buy loan tables are wrong, as the cheapest loan for £4,650+ is to borrow £5,000. If youre borrowing near a threshold, use a loans calculator to check if borrowing more costs less. If you do borrow more, put the extra loan towards repayments.
Want more loan options?
These cheapest loans are updated daily. If you want to see a list of many available loans then online loan comparisons such as Moneyfacts and MoneySupermarket* give a wider range, though may miss some of the cheapest options above.
Can I repay my loan early?
However, if you're considering either substantially overpaying or clearing your debt early with a lump sum, there are some options.
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Early part-repayments are allowed
If your loan was taken out on or after 1 February 2011, you can make partial overpayments on your loan. If your extra repayments total under £8,000 in a year, banks are not allowed to charge you a fee for making an overpayment. But if your overpayments total over £8,000 in a year then the bank is allowed to charge you so long as it has incurred a charge itself.
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Full early repayment
Loan providers must allow you to pay off your loan in full. This is usually subject to a penalty which is usually between one or two months' interest. Check your individual agreement to see what your lender will charge you.
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Higher credit scorers earning £12,000 plus
Borrow from the loan marketplaces Zopa* or Ratesetter* (see below for full explanation) and you're allowed to shorten the repayment term, which effectively allows you to pay off more quickly. Also you can pay off in full without penalty.
Peer-to-peer lending
It sounds funky and different. But for borrowers, getting a peer-to-peer loan is pretty similar to a bank loan, except rates can be cheaper and theyre flexible, so you can repay when you want.
These loans from the two biggies, Zopa* and Ratesetter*, tend to be especially competitive if you have a reasonable credit score and are borrowing smaller amounts.
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What is peer-to-peer lending?
It matches borrowers and lenders (savers), cutting banks out of the equation. People with spare cash can usually get higher returns lending this money than from saving. Similarly, people looking to borrow can usually get lower APRs than from standard loans.
The lending sites do all the organising though, so as a borrower, your relationship and repayments are through them.
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How cheap are they?
They run a marketplace matching savers with borrowers. Rates depend on how good a risk you are. At the time of writing, the cheapest £2,000 standard loan is 12.4% APR. But peer-to-peer lenders are 6.9% - 7.9% APR for the same value (though you need a decent credit score).
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Initial applications dont hit your credit score.
With normal loans, the only way to find out the rate youll get is to apply which leaves a mark on your credit file. Here, peer-to-peer lenders 'soft search' your credit history which future lenders cant see on your file. So it has no effect and it tells you your rate and the lending fee.
If you do actually get the loan, though, itll go on your credit file and your repayment history will be recorded.
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What are flexible repayments?
Most loans require you to pay on a schedule. If you want to part-pay or fully pay early, theres sometimes a penalty. With flexible repayments, you can repay early in part or in full without a penalty.
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Is it safe?
Consumers using peer-to-peer sites are now better protected after the industry became regulated by the Financial Conduct Authority from 1 April 2014. In many ways though, this is to protect savers, not borrowers (as if it went bust and didnt collect your cash, you wouldnt be that upset). However, all major sites have their own safeguards in place to make sure you pay the money back, and that lenders don't lose out.
Cheap, easier-to-obtain loans
Let us be blunt. Although there are plenty of competitive rates now available, getting the cheapest ones can still be difficult.
First, treble-check you're borrowing the absolute minimum needed. Lower amounts are easier to borrow. Plus, make sure you've checked your credit files to ensure a simple error isn't hitting your creditworthiness (read the Credit Rating guide).
After that, there are three main options:
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Use the MSE Loans Eligibility Calculator
The Loans Eligibility Calculator protects your credit score by telling you which personal loans youve the best chance of getting before you apply. All you need to do is put in the loan amount you want, the length of time you want the loan for and its purpose, then some info about yourself. It'll tell you your chances as a percentage of getting different loans so you have an idea before you decide to apply.
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Check out your own bank.
If it looks like you're not going to get a particularly good rate after using the loan comparison service, check the standard loan rate from your own bank to see how it compares.
It knows more about you, and credit scoring is about predicting your behaviour, so that extra data may help. If its advertised rate is cheaper, it's worth calling in for a chat. There's a chance your bank will give you a loan when others wouldn't.
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Consider a credit union loan.
Credit unions are independently-run local co-operative organisations which aim to assist people who may not have access to financial products and services elsewhere. There are 500 in the UK providing loans, savings and current accounts. Each has its own services and rules on who can join.
All credit union loans have no hidden charges, no penalties for repaying early and many include life insurance for the loan as standard. Traditionally a union only lent to people that also held savings with it, but this has been relaxed in recent years and most credit unions will now lend you money regardless of this.
To find interest rates, length and amount of loans available and whether it'll lend to you, contact your local union. As a guide, most lend up to £10,000 and offer a rate of around 13% APR.
In fact, credit union loan rates are capped, and the maximum you can be charged on a loan is 42.6% APR (equivalent to 3% per month). However, you'd be unlikely to face the maximum APR unless you were taking out a very short term loan with the credit union.
For full details on how they work, how to find out if there is one near you and the other financial products that may be on offer, read the Credit Unions guide. Also tell us in the forum what you think of credit unions, so other MoneySavers can learn from your experiences.
If no one will lend you the money cheaply, it's usually best not to borrow at all. If the idea of the loan was to cut the cost of existing debts, please read the Problem Debt Help guide.
Cheapest loans with PPI
Payment protection insurance (PPI) is supposed to cover you in the event of accident, sickness or unemployment for 12 or 24 months. If you have no other funds, wouldn't be covered by work-based benefits, and don't have any other insurance policies that would cover your repayments for a year, then getting a policy may be a sensible move for you.
Let's start by saying this as loud as we can.
Get PPI from the loan company and you'll almost always pay many times more than needed, often wasting £1,000s.
If you already have PPI on a loan, you may want to take a look at the PPI Reclaiming guide.
How to get the cheapest insured loan
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Apply for the cheapest uninsured loan.
Simply use the uninsured loan list above to find the right lender.
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Analyse your PPI requirements.
While most PPI cover is pretty similar, they're not identical. It's worth working out what you need before you start. For example, if you're not working, then you want to only get accident and sickness, not unemployment cover. If you're self-employed, some policies won't cover you, so either choose one that does or just opt for accident and sickness.
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Use the cheapest standalone insurer.
There's a growing industry of small insurers looking to provide reasonable cover that vastly undercuts the banks' own. These include JustClick4Cover, Paymentcare* and iProtect.
If you're really set on just getting the loan and insurance together for the convenience, then never compare using the interest rate, but ask "what's the total cost, including insurance?".
The Loan Calculator
We've designed a unique calculator to help you work out the cost of a loan, plus whether you can save by switching. Unfortunately, this does not work on a mobile so email the guide to yourself so you can have a look at it on your desktop.
Go to the personal loans calculatorUse the calculator below to play around and find out what shortening or lengthening the loan does...
The Loan Calculator
We've designed a unique calculator to help you work out the cost of a loan, plus whether you can save by switching.
Personal Loans can be a big rip off! Find out how to get the cheapest flexible, insured, standard & lower credit scorers loans on Money Saving Expert.
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