Money Insider: Personal loans - to pay less, just borrow more

 

If you're seeking finance to help with the cost of your home improvements or perhaps to change thefamily car, a personal loan from your bank or building society is often the first port of call.

 In most cases the banks and building societies tend to stagger or tier their interest rates depending on the amount borrowed, with the general rule being thelarger the loan, the lower the interest rate.

However, due to the way some providers price their loans, there are occasions where you can actually save money by borrowing slightly more. I know this sounds crazy, but if the amount you’re looking to borrow is close to the crossover point for the next tier, this is where it can sometimes be costeffective to borrow that little bit extra. For example, a lender may price its loans as follows:

  • £1,000-£2,950 at 17.9 per cent;
  • £3,000-£5,000 at 13.9 per cent;
  • £5,000-£7,450 at 9.9 per cent;
  • £7,500-£25,000 at 6.9 per cent.

Currently, a £7,000 loan over five years from Marks & Spencer Money is advertised at 12.9 per cent APR with repayments of £156.39 a month. But if you were to borrow an extra £500 the advertised rate drops to 6 per cent APR and the monthly repayments are lower at £144.43. So borrowing the additional £500 will actually save you £717.60 over the full 60-month term of the loan.

Similarly with AA Financial Services, the rate on a £7,500 loan is 4 per cent APRlower than a £7,000 loan, and as a result it works out £149.63 cheaper to borrow an additional £500 over five years. It’s also worth bearing in mind that the tier structure will vary from lender to lender, so make sure you check competitor rates, as you could significantly reduce your interest charges by borrowing the same amount elsewhere.

If you’re looking to borrow a smaller sum, you’re likely to be put off by the high interest rates. For example the average rate for a £3,000 loan is now just shy of 19.5 per cent APR. A cheaper alternative for amounts between £1,000 and £3,000 is to be smart with your plastic. You could make your purchase by credit card and then switch it to a 0 per cent balance transfer deal.

There are plenty of long-term deals available. In fact just last month Barclaycard launched a best buy interest-free balance transfer card, giving you 0 per cent for 22 months subject to a one-off transfer fee of 2.9 per cent. For those with a spotless credit history, there is a growing list of long-term interest-free promotional offers available, meaning there’s a good opportunity for you to repay your borrowing in full before the 0 per cent offer expires.

Andrew Hagger – Moneynet.co.uk

Reduce temptation to get savings habit

For some people, the hardest part of saving is actually getting started. They may have good intentions of saving some cash at the end of the month, but by the time they get there it’s often been spent elsewhere.

One of the best ways to build a savings pot is to set up a standing order so that the money is switched to your savings account the day after you get paid. That way it won’t be sitting around in your current account tempting you to spend it.

Many banks and building societies offer a Regular Saver account; the interest rates are pretty competitive but the terms and conditions can be quite strict. Most Regular Saver accounts don’t allow any withdrawals during the 12-month term of the account and you must also make a payment every month to qualify for the headline interest rate.

For instance if you’ve got a current account with First Direct, you can get a Regular Saver account paying 8 per cent AER while HSBC offers the same rate for its Premier, Advance and Passport account holders

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    Day In a Page

    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones
    Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

    Why are we addicted to theme parks?

    Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
    Tourism in Iran: The country will soon be opening up again after years of isolation

    Iran is opening up again to tourists

    After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
    10 best PS4 games

    10 best PS4 games

    Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
    Transfer window: Ten things we learnt

    Ten things we learnt from the transfer window

    Record-breaking spending shows FFP restraint no longer applies
    Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

    ‘Can we really just turn away?’

    Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
    Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

    Nine of Syria and Iraq's 10 world heritage sites are in danger...

    ... and not just because of Isis vandalism
    Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

    Girl on a Plane

    An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent