Cheap Personal Loans

Before jumping straight into a loan, first consider if you could get a credit card for a smaller amount. The most important factor here, however, is your credit limit. Unless you've a large income and a good credit score, credit cards won't usually give you more than £3,000-£5,000. So if what you need to buy's more expensive than this, 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 and can clear it in 28 months. You can get up to 28 months at 0% interest on purchases on a credit card – only useful if you can budget to pay off your debt in that time, or you're super-organised and can 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. 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 a specialist money transfer card. These work by transferring cash from the new card to your bank account, so instead you owe the card (though there is a fee). Once there, you can spend it as you would a loan.

  The longest deal at the moment is a card which gives you a 0% period of 28 months (with a 2.99% fee). If you can pay the debt off in that time, or balance-transfer it once the 0% is over, this could be a good replacement for a loan.

• I'm trying to make existing card 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 (about 6.4% APR) last until ALL the debt is repaid – and beyond (see Best Balance Transfers guide).

With all these techniques, make sure you recreate the rigidity of paying off a loan. Work out how much you need to pay off each month to clear the card within the 0% period, then set up a direct debit for that amount each month. This way you're not tempted to skip months and end up owing debt at the end of the 0% (unless you're happy to keep rolling the debt on to new balance transfer cards each time).

The ideal loan customer for a lender is someone with a good credit history (a proven track record of paying credit back on time) and a high level of disposable income.

Yet your credit history and your income are doing two different jobs in the lender's scorecard. We break it down here...

• Credit history. Your credit record counts towards whether the lender will be willing to lend to you in the first place. But crucially it also contributes to the rate it's likely to offer you. A good credit record will make it more likely you'll get the advertised rate; if your credit history's poorer, it's likely you'll still get the loan, but you'll be repriced to a higher rate, as you're a bigger risk for the lender.

• Income. Your disposable income dictates how much a lender will be willing to lend. This is worked out based on your income, minus rent or mortgage payments (and other outgoings that the lender estimates 'someone like you' would have, based on where you live and your number of dependants). And while you may have a perfect credit record, if your disposable income's not high enough (or not estimated to be high enough), you won't get the loan.

Our Loans Eligibility Calculator and Credit Club mimic these criteria when they're working out your loan chances. Credit Club also drills in to your affordability for loans and gives you a score ranging from 'poor' to 'very good' based on this.

While generally you should try to minimise borrowing, a peculiar quirk means with loans sometimes you pay less by getting a slightly bigger loan. This happens because rates decrease at set thresholds.

For example, if you wanted to borrow £4,900 over 5yrs, the cheapest loan is 6.7%, so in total you repay £5,780. Yet borrow £5,000 and as the rate drops to 3.4%, the total repayment is £5,444 – that's £336 LESS repaid even though you borrowed £100 more.

So if you're borrowing close to a threshold (£2,000, £3,000, £5,000 or £7,500) use our Loan Cost Calc to see if you're better off borrowing a tad more (assuming you're accepted for the advertised rate). You could even use the 'extra' cash towards your first loan repayment(s).