Cheapest ever loan 3.5% – and tricks to slash costs further

This content originally appeared in the MSE weekly email on 10 June 2015.

Loan rates have plummeted, and for once it's not just for larger amounts – they're competitive from £2,500 up.  

Done right, borrowing's cheap, yet that doesn't mean you should do it. Only go for it for planned spending, eg, a new car or kitchen, for as little as needed, repaid as quickly as possible, where you've budgeted and repayments are affordable. 

Here's the latest:

• New 3.5% loan. Rates have dived. In recent years, while APRs for bigger loans have been decent, even the cheapest small loans have been outrageously expensive, so to have a list of best buys all in single-digit APRs is a welcome change.

  Warning: Applying marks your credit file, so first find which loans you're most likely to be accepted for using our Loans Eligibility Calculator so you can minimise applications. - £7,500 to £15,000: Sainsbury's* over one to three years is now 3.5% rep APR for Nectar cardholders (if you haven't got one, just get one; it's instant and free) and 3.6% rep APR over 4-5 years*. Next cheapest is M&S* at 3.6% over one to five years.

  - £5,000 - £7,499: M&S* and Zopa* offer 4.5% rep APR over one to five years.

  - £2,500 - £4,999: Hitachi* is 8% rep APR, then 7.8% above £3,000 over two to five years. Peer-to-peer lenders Zopa* and Ratesetter* have personalised rates and may undercut it. Full info: Cheap Loans guide (APR examples).

• For smaller amounts, 0% credit card loans win. A few specialist cards allow money transfers, where the card pays cash into your bank account like a loan, then you owe it instead. Accepted new MBNA* (Eligibility Calc) cardholders can get up to two years 0% for just a 1.7% one-off fee (min £3).

  Just never miss a min repayment and clear before the 0% ends or it's 22.9% rep APR. Full step-by-step help and more best buys in Money Transfers.

• A 3.5% loan can charge you 20%. All loans are now 'representative' rate, meaning only 51% of those accepted need to be given that rate and the rest could pay more. The only way to know is to apply, and that marks your credit file.

  Our Loans Eligibility Calculator (it performs a 'soft-search' that lenders can't see) can't tell you if you'll get the rate, but shows acceptance odds – the higher they are, anecdotally, the more likely you'll get the advertised rate.

All applicants require a credit check – see our Boost Your Credit Score guide. And if struggling with debt, see Debt Help.