For those who need to borrow, loans can be vicious - even the best deals have more tricks than Paul Daniels' sleeve. Yet carefully beat these traps and it's possible to borrow for as little as 4.5%.
This is a step-by-step guide, with daily-updated best buys and a unique calculator to pare your costs to the bone.
Best buy personal loans:
Loans versus credit cards
Personal loans let you borrow up to £25,000. The key sell's "structured repayments", so you know how long you're borrowing for and what it'll cost each month. Yet in general, borrowing on the cheapest credit cards substantially undercuts the cheapest loans; meaning in many circumstances, they should be used first.
- Are you trying to make existing credit card debts cheaper?
In most cases, a loan won't be cheapest for you. Credit card balance transfer deals are designed to allow you to shift other cards' debts to them at a special cheap rate, usually much cheaper than the best loan rates.
This doesn't mean you need to keep shifting debts between short-term 0% deals. Some cheap deals last until ALL the debt is repaid (see Best Balance Transfers). Though make sure you make at least similar repayments to what the loan would cost each month.
- Do you want to borrow for under a year or less than £1,000?
Loans over short periods or for small amounts are almost always expensive. But a variety of techniques can cut the cost. Many credit cards allow new customers to spend on them at 0% for up to the first year - read the 0% Cards guide.
Providing you can make the purchase on a card, and will definitely pay it off before the 0% deal ends, that's the best option (read Short Term Interest-Free Loans for full details).
Need to borrow for a specific purchase / a lump sum?
Here, loans are tough to beat, not because they're particularly cheap, but as it's difficult to do it any other way. But if you're money-savvy, there's a way to replicate the facilities of a loan using a credit card, cutting the interest rate to around 7% APR. Read Cut-Price Plastic Loans.
- Looking to try to cut the cost of an existing loan?
Don't automatically assume switching to a cheaper interest rate will save you money. Many loans, especially older ones, have lock-in penalties. These mean even though you'll pay less interest, when you add in the fine for moving, you'll pay more overall.
- Can you get a loan from your employer?
Some employers offer loans to employees, usually for buying travel season tickets so they can get to and from work. Provided the total value doesn't exceed £10,000, these loans can be made tax-free by employers, and paid back over the year from the employee's salary.
These loans don't have to be made for travel purposes, so see if your employer provides tax-free, interest-free loans - they'll be the cheapest you can get.
Choosing the right loan
Some of the lowest interest rate loans can be the most costly due to nasty hidden costs. Before you pick the type of loan, it's crucial to decide one thing.
How much, for how long?
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 over-borrowing can cause debts to spiral out of control. Also question everything. Can you avoid any debt? The Loan Calculator has a special 'how much can I borrow?' option to work it out for you.
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' (and have been since February 2011). This means only 51% of successful applicants are guaranteed to get those rates. This means up to 49% may end up with a more expensive loan than they expected, not to mention the applicants who get rejected outright.
The upshot is borrowers left without lending at the rate they expected are landed with a search on their credit file, which can hit their ability to get credit in future. The only solutions are to just apply for loans you're pretty sure of getting, or use the (very rare) loans that tell you the rate you'll definitely get (like Nationwide below).
MSE Loan Finder
To narrow down your selection, slide the slider to display the results
|Lender and representative APRs
See all official APR examples
|The cheapest loan for smaller amounts using a credit card||
A few specialist credit cards can effectively be turned into lump sum loans, eg, £3,000 over 16 months at the equivalent of 6.3% APR. This is far cheaper than the standard loans below, full step-by-step in the Cheap Credit Card Loans.
|£1,000 - £1,999|
Marks & Spencer 19.9% rep APR
|£2,000 - £2,999||
Post Office 14.9% rep APR
|£3,000 - £4,999|
Tesco* 12.8% rep APR
(for flexible repayments)
|Cheapest standard rate||Lender & Representative APRs
See all official APR examples
|Cheapest standard loans for £5,000 - £7,499|
Santander* 6.0% rep APR
Tesco* 6.4% rep APR
|Cheapest standard loans for £7,500 -
HSBC 4.8% rep APR (current account holders only)
Nationwide* 5.9% rep APR (current account holders only) or 6.2% rep APR for everyone else.
Before you apply, Nationwide will tell you the rate you'll get if accepted, via a credit 'soft search', so you avoid a higher than expected rate and a wasted credit check(but it could still reject you).
|Cheapest standard loans over £15,000|
Barclays 5.7% rep APR (current account holders only)
Nationwide* 7.3% rep APR for current account holders only or 7.4% rep APR - everyone else
Before you apply, Nationwide will tell you the rate you'll get if accepted, so you avoid a higher than expected rate and a wasted credit check(though it could still reject you).
|Cheapest standard loans for over £25,000||
Maximum personal loan borrowing is £25,000. If you need more, be very careful, it's a huge commitment. You can combine loans, or add the debt to a remortgage, though that often means extending the term, more interest and securing the debt on your house.