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
Independent Partners: See how much you could save by switching credit cards. Compare now
interviewThe producer and activist, Trudie Styler, whose film 'Filth' is up for five film awards, is tapping into the industry's neglected female talent
interviewHer estate has become the nation's glossiest food empire
theatreTheatre's hitmaker Daniel Evans on 'Oliver' and bringing 'The Full Monty' to the stage
food + drinkMichelin-starred Tom Sellers on being this year's hottest property
tvParents (and kids) rejoice! A new wave of fantastic family entertainment is here
booksGeese, gorillas, grandads... and growing up
food + drinkHow one grocery e-tailer is gearing up for the Yuletide rush
food + drink
travelFor broadcaster Mishal Husain, a long-haul Club Med holiday was a chance for her family to explore its sense of 'zen' and 'animation'
- 1 Hundreds arrested as Canadian police smash worldwide paedophile ring
- 2 Sherlock series 3: Benedict Cumberbatch and Martin Freeman provide teasers for the biggest comeback in British television
- 3 David Duke: Former Ku Klux Klan leader expelled from Italy
- 4 Why Barcelona chose Everton to educate their latest prodigy
- 5 Japan cracks down on leaks after scandal of Fukushima nuclear power plant
- < Previous
- Next >
iJobs Money & Business
£80000 - £100000 per annum + benefits + bonus: Harrington Starr: Project Manag...
£50000 - £60000 per annum + benefits + bonus: Harrington Starr: Business Analy...
£30000 - £40000 per annum + Bonus and Benefits: Harrington Starr: A global Con...
£150 - £250 per day: Cornwallis Elt : iPhone Rollout- Blackberry Enginee...
Day In a Page
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.
John Lennon's childhood home in Liverpool to be sold at auction. Guide price: £150,000-£250,000.
A six-bedroom detached period property with secluded gardens, ample parking and a double garage in Rye, £675,000.
A large split-level property with three double-bedrooms and roof terrace, close to Crouch End Broadway, £625,000.
A charming barn conversion in the picturesque Cotswold village of Ilmington with three bedrooms, a detached garage, workshop and beautifully manicured gardens £675,000.
A three-bedroom new build, ground-floor flat with two bathrooms, close to Bermondsey tube, £445,000.
A three-bedroom house in an enviable new development moments from Oxshott High Street, with secluded garden and decked area, £385,000
A two-bedroom split-level flat with stunning south-west facing roof terrace in the popular Brondesbury Conservation Area, £549,950.
A charming 16th century, three-bedroom detached house in Bidborough with picturesque garden