Money Insider: Steer clear of big banks' high rates on small loans
Friday 20 September 2013
Interest rates are at rock bottom if you're in the market for a five-figure personal loan from your bank. But if you apply to borrow a smaller sum you'll be in for a nasty surprise.
The battle for personal loan business is as fierce as it's ever been, but the issue for consumers is that many lenders are cherry picking and concentrating on the higher value end of the market.
Rates are very attractive if you want to borrow £10,000, for example, with lenders currently battling it out at the top of the best buys, enticing customers with interest rates of 4.8 per cent APR from Sainsbury's Bank and 5 per cent APR from Yorkshire Bank and Derbyshire Building Society.
For lower value loans it is a very different story, with the majority of lenders charging double-digit rates on a £3,000 advance, with NatWest and Halifax among the most expensive at 19.9 per cent APR and 24.9 per cent APR, respectively.
There are cheaper options available, but my research shows you would do well to steer clear of the established providers if you want the best deals.
There are a handful of borrowing options that stand out, if you want to borrow a smaller sum of money, as follows:
Zopa, the biggest peer-to-peer lender in the UK, and RateSetter, one of the fastest-growing lenders in the same market, offer some of the best deals at 6.5 per cent APR and 8.2 per cent APR, respectively, for a £3,000 loan over three years.
Just because you're not familiar with the names, it doesn't mean you should discount them. The peer-to-peer sector has quickly established itself as a credible alternative to the big banks, and the low interest rates are much better than you'll find on the high street.
Zopa has already lent more than £375m and RateSetter more than £108m to personal customers since launch, but you'll need a good credit record if you want to borrow from these firms.
Another option to consider is the Rate for Life card from MBNA. Although this isn't strictly a personal loan, there's nothing to stop you using this long-term fixed-rate credit card in the same way you would a loan. If you make your purchase with the card and set up a monthly standing order from your current account, it works exactly the same as a personal loan.
The interest rate is 6.9 per cent APR for as long as it takes you to clear the balance, and unlike many deals there is no balance transfer fee to pay. It remains one of the cheapest ways to borrow a smaller sum over three or five years. There is a similar deal on offer from AA, with its Transfer Plus Credit Card charging 6.9 per cent APR for life, subject to a one-off balance transfer fee of 2 per cent.
The potential cost savings on a loan of £3,000 with the low-rate options mentioned here could be as much as £23 a month or £830 in total over a three-year term when compared with the personal loan with Halifax, charging 24.9 per cent APR
For £3,000 over five years the financial benefits are even greater at up to £25 a month and more than £1,478 over the full term.
Don't just sign up with your own bank without checking out some of the less obvious alternatives, as there's a good chance that you'll be paying over the odds.
You wouldn't buy a new car or a replacement kitchen without comparing prices from various retailers, so why take the shine off your cut-price deal by paying for it with expensive finance.
Shop around for the lowest rate you can get. By simply avoiding the major banks and taking advantage of deals from new lenders you can save a packet in interest charges.
Andrew Hagger is an independent personal finance analyst at moneycomms.co.uk
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
Q&A: What’s the best way to invest for our baby?
Simon Read: 'Seven Families campaign offers an escape from financial and emotional distress'
After the election: What will Britain's financial future look like on 8 May?
General Election 2015: How you vote next week could affect your finances
- 1 Which country would be hardest to invade?
- 2 The man who filmed the Freddie Gray video has been arrested at gunpoint
- 3 Royal baby girl born: Duchess of Cambridge's second child will be a princess thanks to Queen
- 5 Teen suffers embarrassing wardrobe malfunction in front of deputy PM
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
Indonesia executions live: 'Hysterical' families heard prisoners being shot dead by firing squad
General Election 2015: SNP and its activists 'openly racist' towards the English, Farage says
EU exit would hit UK economy much harder than neighbouring countries, study finds
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
iJobs Money & Business
£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...
£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...
£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...
£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...
Day In a Page
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park