Cheap Personal Loans

But much depends on why you're getting a loan, and how much you want to borrow. We've spelled out the most common situations, and where you might want to think about a credit card instead of a loan.

When a credit card's better than a loan

The most important factor here is your credit limit. Credit cards won't usually give you more than £5,000, and that's provided that you have a good credit score. So if what you need to buy is more expensive, you're probably better off looking for a £5,000+ loan.

But, if you can buy whatever it is for £5,000 or less, you have several other options. See if any of these scenarios fit you...

• I can use a credit card to pay and can clear it in 30 months.

  You can get up to 30 months 0% spending on a credit card, but this is only useful if you can budget to pay your debt off in that time, or you're organised enough to balance transfer the debt to another card before the 0% period ends.

  This technique's also only useful if the retailer takes credit cards. And some – most notably car dealerships – often don't. But, there's still a way to use a card to beat a loan...

• I can't pay directly on a credit card or I need longer than 30 months.

  Don't worry, even if you can't pay the retailer directly on a credit card, you can still pay by card, it's just slightly more complex.

  You'll need to get a specialist money transfer card. These work by transferring cash from your new card to your bank account, so you owe the card instead (though there's a fee to do this). Once there, you can spend it as you would a loan.

  The longest deal at the moment is a card which gives you debt at 0% for up to 36 months (3.94% fee to transfer the money). One card currently lets you do money transfer for a smaller 2.99% fee, though this time you only get up to 32 months at 0%. So if you can pay the debt off in that time, or balance transfer it once the 0% is over, this could be a great replacement for getting a loan.

• I'm trying to make existing debts cheaper.

  In most cases, a loan won't be cheapest. 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 (around 6% APR) last until ALL the debt is repaid – and beyond (see Best Balance Transfers guide). Though make sure you make at least similar repayments to what the loan would cost each month.

But a credit card's not always the best option...

• Most credit cards won't give you a credit limit higher than £5,000, so if you want to borrow more, you might be better checking out the best buy loans below and using the Loans Eligibility Calculator, which tells you which loans you've the best chance of getting before you apply.

• I'm trying 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. Our Cutting Existing Loan Costs guide has a calculator showing you if you'll gain by switching.

• I think I can get a loan from my 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 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 these loans – they'll be the cheapest you can get.

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).

Lenders have to tell you that their loan rates are representative. They'll do this by having a representative example on their site of what it may cost. You'll see something like this...

"A loan of £7,500 over 60 months at 3.2% APR would equate to monthly repayments of £135.43, and the total cost of the loan that you pay back would be £8,125.97."

In this guide, we compare loans that can be paid back over terms of between one and seven years. Rates in the best buy tables below start at 2.7% and go as high as 12.9%, though you could be priced higher as the APR you'll be charged depends on your personal circumstances.

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.

Will you be accepted?

It's worth noting, loan acceptance isn't just about your credit score. Your affordability score (shown in the free MSE Credit Club) also comes into play, especially for larger loans. This is because even with a great credit history, if lenders think you may struggle to repay such a large amount, they'll reject you.

When you use the loans eligibility calc - which you can also access via Credit Club - you put in the amount you're borrowing and it incorporates this, showing your acceptance odds for that amount.

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 find out which loans you'll get, without 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 you successfully apply for one of their accounts). Read a full Nationwide how-to.

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.

If you wanted to borrow £4,900 over five years, the cheapest loan's 6.7%, meaning a total repayment of £5,780 (£880 interest). Yet borrow £5,000 and the rate drops to 3.4%, which means total repayments are £5,444 (£444 interest) - that's £336 LESS, even though you borrowed £100 more.

Therefore best buy loan tables are wrong, as the cheapest loan for £4,600+ is to borrow £5,000. If you're 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 every week. 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.

Cashback sites may pay you for signing up

As an extra boon, members of specialist cashback websites can be paid when they sign up to some financial products. Do check that it's exactly the same deal though, as terms can be different. And remember the cashback is never 100% guaranteed until it's in your account. 

Full help to take advantage of this and pros & cons in our Top Cashback Sites guide.

Can I repay my loan early?

One of the main ways to add flexibility used to be via the Cheap Credit Card Loans loophole, which allows total flexibility and has rates cheaper than loans. But it's only for the financially savvy as it's easy to mess up.

However, if you're considering either substantially overpaying or clearing your debt early with a lump sum, there are some options.

• 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.

• 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 and two months' interest. Check your individual agreement to see what your lender will charge you.

• 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 they're 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.

• 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.

• 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).

• Initial applications don't hit your credit score.

  With normal loans, the only way to find out the rate you'll 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 can't 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, it'll go on your credit file and your repayment history will be recorded.

• What are flexible repayments?

  Most loans require you to pay on a schedule. If you want to part-pay or fully pay early, there's sometimes a penalty. With flexible repayments, you can repay early in part or in full without a penalty.

• 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 didn't collect your cash, you wouldn't 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.

For more information, see our Peer-to-Peer Lending guide for savers.

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:

1. Use the MSE Loans Eligibility Calculator

   

   The Loans Eligibility Calculator protects your credit score by telling you which personal loans you've 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.

2. 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.

3. 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.

   Recently several credit unions have got together to offer an online portal for their loans. CU Loans* will take some details on you and the loan you want and will then find if there's a credit union you're eligible for, and your loan will be processed through that credit union. You can borrow between £1,500 and £15,000 for between one and five years. The representative APR is 8.9%, but 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). Most loans are cheaper than the cap, and it's generally only used for very short term loans.

   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.

   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

1. Apply for the cheapest uninsured loan.

   Simply use the uninsured loan list above to find the right lender.

2. 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.

3. 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?".

Use 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 Calculator

Pick your question...

How much do you want to borrow? £

What's the annual interest rate (APR)? % This is the cost of your loan. To help you calculate, best buy APRs for common loan amounts include:
£1,000-£1,999: 8% to 20%
£2,000-£2,999: 8% to 19%
£3,000-£4,999: 8% to 13%
£5,000-£7,499: 3.6% to 9%
£7,500-£15,000: 2.9% to 7%
£15,001-£25,000: 3.2% to 8%

How long do you want to borrow for? months You can usually choose to borrow over 12 to 60 months (1 to 5 years). If you choose a shorter loan, you'll have a higher monthly payment, but will pay less in interest. A longer loan generally means a lower monthly repayment, but you'll pay more in interest as you're borrowing over a longer period of time.

What can you afford to repay each month? £

What's the interest rate? %

How long do you want to borrow for? months

Switching loans isn't as simple as you think – on how to switch, read our Existing Loans guide.
YOUR CURRENT LOAN

How many months are left? months

How much do you repay per month? £

What will it cost to pay off your existing loan now?
(Ring your bank and ask it for a settlement figure.) £

YOUR NEW LOAN

What's the best interest rate you can get for a new loan? %

Just want to see the best buys?