Money Insider: Shopping around for a cheaper loan could save £1,000
Saturday 05 April 2014
Choose the wrong personal loan and you'll be well out of pocket. Interest rates are at an all-time low if you're in the market for a five-figure loan from your bank, but if you need to borrow a smaller amount it's far more expensive.
The battle for the personal loan business is as intense as it's ever been, but lenders are concentrating on the higher value end of the market.
Rates are at rock bottom if you want to borrow £10,000 for example, with lenders enticing customers with interest rates as low as 4.4 per cent APR from Sainsbury's Bank.
For lower value loans it's a very different picture, with many lenders charging double digit rates on a £3,000 advance, with Barclays and Halifax among the most expensive at 19.9 per cent and 18.9 per cent APR respectively.
There are cheaper options, but my research shows you'd do well to steer clear of the established providers if you want get the best deals. There are a handful of borrowing options that stand out: Zopa, the biggest peer to peer lender in the UK, and RateSetter offer some of the best deals, at 7.2 per cent and 9.7 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 is regulated and has established itself as a credible alternative to the big banks. Zopa has already lent over £500m, but just be aware you'll need a good credit record if you want to borrow from these firms.
Another option 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 in exactly the same way 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's no balance transfer fee to pay. It remains one of the cheapest ways to borrow a smaller sum for a few years. There is a similar deal on offer from AA with its Transfer Plus Credit Card (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 at 6.9 per cent APR is £601 over a three-year term when compared with the personal loan with Barclays, charging 19.9 per cent APR. If you stretch the term to five years, the cost saving increases to a staggering £1,060.
The golden rule with personal loans is don't automatically sign up with you own bank without checking out some of the less obvious alternatives, as you might be paying over the odds.
Shop around for the lowest rate you can get; simply by 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 from www.moneycomms.co.uk
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Russell Brand accuses FOX News anchor Sean Hannity of terrorism after aggressive Israel-Gaza debate
- 2 Pope Francis issues top 10 tips for happiness – including don’t try to convert other people
- 3 Arturo Vidal to Manchester United: Midfielder set to force through move to Louis van Gaal's Red Devils - reports
- 4 Disney heiress Abigail disowns her share of family profits in West Bank company
- 5 Israel's propaganda machine is finally starting to misfire
The secret report that helps Israel hide facts
Land for gas: Merkel and Putin discussed secret deal could end Ukraine crisis
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
Richard Dawkins tweets: 'Date rape is bad, stranger rape is worse'
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Boozy, ignorant, intolerant, but very polite – Britain as others see us
- < Previous
- Next >
iJobs Money & Business
£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...
£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...
Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...
£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...
Day In a Page
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000