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Want to cut the cost of your current loan? With the current crop of record-low loan rates, you might be able to, but it's often difficult to be able to tell if you can save.
This cost-cutting guide will show you how to find the best new deal, and features a unique loan switching calculator so you can see if you can cut your costs.
Please note, this article is about unsecured loans, ie, the type sold by most high-street lenders. The issues surrounding secured loans (where your home may be at risk) are even more complex. So this article is a secured loan-free zone.
This is a step-by-step guide to see if you can cut the cost of your existing loans. Here's how to do it...
Step 1: Call your current lender for a settlement figure
Before finding out if you can save, you'll need to call your existing lender to ask it a couple of questions. This is the big one:
How much would it cost me to pay off my loan right now?
This is what you need to borrow on your new loan. It's the full debt plus early settlement charge (if any); the maximum fee is two months' interest. This is called the settlement figure.
Unless you already know, it's also worth asking what your exact monthly repayments are, and how long the loan has to go (you'll need both pieces of info for the calculator below).
Quick question
What early settlement charges might I have to pay?
Generally, most loans taken out these days (and since June 2005) don't really have penalties for repaying early, but if they do, they're limited to a maximum of two months' interest. If you are charged, the amount will depend on how long your loan has to run, and how much you're paying off. Ask your lender what charges apply.
If your loan was taken out before June 2005, there could be a hidden penalty, due to the old-style Rule of 78 interest calculations - ask your lender if you're caught by this. It's a hideously complicated formula that artificially allocates early years' repayments towards the interest, hardly decreasing the amount you owe. This means if you attempt to repay in full early, there'll be much more left than you think.
Step 2: Find YOUR new top loan rate
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 free Loans Quick Eligibility Calc or our FULL Credit Club Loans Eligibility Calc (where you also get a free Credit & Affordability Score). They show your chances of getting most top loans without hitting your credit score.
Though, beware, all the top loans compared below and in the eligibility checker are representative rates. This means only 51% of those accepted actually need to be given these rates. Depending on your credit score, you may pay a lot more.
For full information about the current best deals, read the full Cheap Personal Loans guide.
Cheapest loans under £5,000
| Cheapest standard rate |
Lender and representative APRs (all rates over 1-5 years unless stated) See all official APR examples |
|---|---|
Check which loan you can get before you applyEligibility Calc. (MSE's free tool)Usually the only way to know if you'll get a loan is to apply, which marks your credit file. Our Eligibility Calculator does a soft search to find which loans you'll get without harming your creditworthiness. |
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Cheapest loans for £1,000 - £1,999 Want to find out if you'll get these loans? Use the Eligibility Calculator. |
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| A few specialist credit cards can approximate loans and are far cheaper than the loans below, full step-by-step in Money Transfers. | |
| RateSetter* 6.7% rep APR | |
| CU Loans* 8.9% rep APR for £1,500-£1,999 (will find if there's a credit union you're eligible for) | |
| Zopa* 9.5% rep APR (1 year term) Zopa* 9.9% rep APR (2-5 years) |
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| Asda Money 9.9% rep APR (will search various lenders and tell you the rate you'll get before you apply, not in eligibility calc) | |
| Cheapest loans for £2,000 - £2,999 Want to find out if you'll get these loans? Use the Eligibility Calculator. |
A few specialist credit cards can approximate loans and are far cheaper than the loans below, full step-by-step in Money Transfers. |
| RateSetter* 6.7% rep APR | |
| Zopa* 6.9% to 7.9% rep APR (depending on amount & term) | |
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Ikano Bank 7.8% rep APR (not in eligibility calc) |
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| CU Loans* 8.9% rep APR (will find if there's a credit union you're eligible for) | |
| Cheapest loans for £3,000 - £4,999 Want to find out if you'll get these loans? Use the Eligibility Calculator. |
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Zopa* 5% to 6.9% rep APR (depending on amount & term)
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Admiral* 6.7% rep APR |
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RateSetter* 6.7% rep APR |
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Ikano Bank 7.7% rep APR (not in eligibility calc) |
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Cheapest loans from £5,000 to £15,000
| Cheapest standard rate |
Lender and Representative APRs (all rates over 1-5 years unless stated) See all official APR examples |
|---|---|
Check which loan you can get before you applyEligibility Calc (MSE's free tool)Usually the only way to know if you'll get a loan is to apply, which marks your credit file. Our Eligibility Calculator does a soft search to find which loans you'll get without harming your creditworthiness. |
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| Cheapest loans for £5,000 - £7,499 Want to find out if you'll get these loans? Use the Eligibility Calculator. |
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| Zopa* 3.4% rep APR | |
Admiral* 3.5% rep APR |
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| Tesco Bank* 3.5% rep APR | |
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M&S Bank* 3.6% rep APR (1-7 years) |
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| John Lewis Finance* 3.6% rep APR | |
Hitachi* 3.6% rep APR
(2-5 years) |
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Cheapest loans for £7,500 - £15,000 Want to find out if you'll get these loans? Use the Eligibility Calculator. |
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Sainsbury's Bank* 2.7% rep APR (Nectar cardholders only, 1-3 years) Sainsbury's Bank* 2.8% rep APR (Nectar cardholders only, 37mths-5 years) |
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| Cahoot* 2.8% rep APR | |
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M&S Bank* 2.8% rep APR (1-3 years)
M&S Bank* 2.9% rep APR (37 months - 7 years) |
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Yorkshire* / Clydesdale* 2.9% rep APR (1-7 years) |
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| John Lewis Finance* 2.9% rep APR | |
| Zopa* 3% rep APR | |
Cheapest loans over £15,000
| Cheapest standard rate |
Lender and Representative APRs (all rates over 1-5 years unless stated) See all official APR examples |
|---|---|
Check which loan you can get before you applyEligibility Calc (MSE's free tool)Usually the only way to know if you'll get a loan is to apply, which marks your credit file. Our Eligibility Calculator does a soft search to find which loans you'll get without harming your creditworthiness. |
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Cheapest loans for
£15,001 - £19,999 Want to find out if you'll get these loans? Use the Eligibility Calculator. |
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| Cahoot* 2.8% rep APR | |
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Sainsbury's Bank* 2.8% rep APR (Nectar cardholders
only, 2-3 years) Sainsbury's Bank* 2.9% rep APR (Nectar cardholders only, 37 months - 7 years) |
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M&S Bank* 2.8% rep APR (1-3 years)
M&S Bank* 2.9% rep APR (37 months - 7 years) |
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Yorkshire* / Clydesdale* 3% rep APR (1-7 years) |
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| Tesco Bank* 3% rep APR | |
| The AA* 3% rep APR (AA members only, 1-7 years) The AA* 3.1% rep APR (1-7 years) |
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Cheapest loans for
£20,000 - £25,000 Want to find out if you'll get these loans? Use the Eligibility Calculator. |
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Sainsbury's Bank* 2.8% rep APR (Nectar cardholders
only, 2-3 years) Sainsbury's Bank* 2.9% rep APR (Nectar cardholders only, 37mths-7 years) |
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Yorkshire* / Clydesdale* 3% rep APR (1-7 years) |
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| Tesco Bank* 3% rep APR | |
| The AA* 3% rep APR (AA members only, 1-7 years) The AA* 3.1% rep APR (1-7 years) |
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| Post Office* 3.1% rep APR (1-7 years) | |
Zopa* 3.1% rep APR |
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| Cheapest loans over £25,000 Want to find out if you'll get these loans? Use the Eligibility Calculator. |
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Must have a First Direct current account First Direct 3.3% rep APR (loans between £25,000 and £30,000, 1-7 years, not in eligibility calc) Must have a First Direct current account First Direct 6.7% rep APR (loans between £30,001 and £50,000, 1-7 years, not in eligibility calc) |
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| Tesco Bank* 6.8% rep APR | |
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Yorkshire* / Clydesdale* 6.9% rep APR |
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| Sainsbury's Bank* 6.9% rep APR (Nectar cardholders only, 2-3 years) | |
First Direct now offers personal loans to its current account customers up to £50,000 and Sainsbury's Bank offers loans up to £40,000. Tesco Bank, Yorkshire Bank and Clydesdale offer up to £35,000. Though be very careful in getting a personal loan for such a large amount as it's a huge commitment. If you can't get this, you could combine loans, or remortgage, though that often means extending the term, more interest and securing the debt on your house. |
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Step 3: The BIG reveal - check if you can save
Plug the old and new loan details into our nifty loan switching calculator. If you can save, apply. If accepted, use the new loan to pay off the old one (note the calculator assumes you will borrow the new amount over the same remaining number of months).
The Loan Switching Calculator Is it worth switching loans?
Q&A Cutting loan costs
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If I come into a windfall, should I pay the loan off?
A standard MoneySaving rule of thumb is always pay off any debts before stashing any money in savings (read Pay off Debts with Savings). In general, this is true with loans too, though due to the repayment penalties you may be financially better off by sticking it in a high interest account and drip-feeding loan payments out of there.
So if the 'total repayment' figure of your loan is £5,000, yet to keep repaying it each month costs £5,100 in total, you only gain £100 by paying it off now. Stashing the loan repayments in a top savings account could earn you more (See Instant Access Savings). However, if in doubt of the calculations, always err on the side of clearing your debts.
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Can I cut my loan costs even further?
You may be able to if you have a relatively small loan.
Credit cards are a much cheaper way to borrow than loans; short-ish term borrowing at an equivalent 2%ish APR is possible. Yet if you already have a loan, shifting it to a credit card isn't an easy operation. It is possible, although tricky, to do it though.
Only attempt it if you've got a good credit score and, more importantly, are very money-savvy. You can find full details in the Money Transfers guide.
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What if I need to borrow more than they'll lend?
Once you've applied for the loan, it's already marked as a 'hard search' on your credit report. So assuming you applied for the cheapest loan for you, then there's no point in not accepting that cash because it's not the money you need. The answer's relatively simple – just apply for another loan to fill the gap. If you haven't been turned down due to a credit score issue, this isn't likely to be too difficult.
Just ensure both loans are still saving you money. If not, use the first to partially pay off the second - every little helps!
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What will happen if UK interest rates change?
Almost every personal loan is at a fixed rate, so the rate and repayments you are given at the outset are fixed over the life of the loan, regardless of what happens to the base rate. Thus there's no impact whatsoever, whether rates rise or fall.
But a change in the base rate will affect those looking to get a new loan, although it's not an exact relationship. As loans are borrowed over the long term, the rates lenders set depend more on the City's predictions of long-term interest rates rather than the actual UK base rate.
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How quickly will I get the money?
That depends on the lender. There are some which will give you the cash instantly (or at least on the same day) if they accept you.