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Spend & Save

Money Insider: Want a loan of £5,000 or less? Shop around


Interest rates on personal loans may be close to record lows for those borrowing five- figure sums but it's not all good news, with some lenders charging 20 per cent APR plus to customers who only want a loan of £5,000 or less.

The battle for personal loan business is as intense as ever, but many lenders are cherry picking and concentrating on the higher value end of the market. Rates are very competitive if you want to borrow £7,500 or £10,000, with five lenders currently fighting to be top dog and advertising representative interest rates of between 5.6 per cent APR and 5.9 per cent APR.

For lower value loans it's a different story, with most lenders charging double digit rates on a £3,000 advance, and NatWest and Halifax amongst the most expensive at 20.9 per cent APR and 24.9 per cent APR respectively.

There are cheaper options available, but my research shows you'd do well to steer clear of the established providers if you want the best deals. There are three borrowing options that stand out if you want to borrow £5,000 or less:

Zopa, the first peer-to-peer lender in the UK, is now in its eighth year and RateSetter, one of the more recent lenders in the peer-to-peer market, both offer some of the best value deals at 9.5 per cent APR and 9.7 per cent APR respectively for a £3,000 loan over three years. Just because you're not familiar with the names doesn't mean you should discount them — the peer-to-peer market has quickly established itself as a credible alternative to the big banks — and the interest rates are much better than you'll find on the high street. Zopa has already lent more than £230m and RateSetter has advanced more than £36m to personal customers.

Another option is the Rate for Life card from MBNA. Although not strictly a personal loan, there's nothing to stop you using this long-term fixed-rate credit card in the same way you would as a loan. If you transfer your balance to the card and set up a monthly standing order for your current account, it works exactly the same as a personal loan. The interest rate is 5.9 per cent APR, and even with the one-off 1.5 per cent balance transfer fee it is one of the cheapest ways to borrow a smaller sum over three or five years.

On a loan of £3,000 the low rate options mentioned here could potentially save you up to £22.79 per month, and as much as £821 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 savings are even greater, at up to £24.88 per month and more than £1,400 over the full term.

Don't just sign up with your own bank without looking at all the alternatives, as you could pay way over the odds and end up out of pocket.

Shop around for the lowest rate, and by thinking outside the box or taking deals from new lenders you can save a small fortune.

How to home in on a bargain mortgage rate

It may be a wretched time for savers with rates continuing to slide over the last couple of months, but for mortgage borrowers the deals seem to be getting cheaper by the day.

For homeowners currently on their lender's standard variable rate, who may be worried about their rate increasing following moves by some of the biggest lenders this year, Barclays is offering an enticing deal.

The interest rate on its Great Escape 2-year fixed mortgage has been cut to just 3.29 per cent for those with a 30 per cent deposit, plus it comes with extra sweeteners including no product fee, no legal costs, a free valuation and £300 cashback.

The good news is that rates are falling for all borrowers, across a wide range of loan to values. The five-year fixed rate market is a prime example. In the last week we've seen new deals from Tesco Bank at 3.19 per cent with £1,295 fee up to 60 per cent LTV, Co-operative Bank down to 3.99 per cent with £995 fee to 85 per cent LTV, and Yorkshire Bank doing its bit for first-time buyers with a cut-price 4.79 per cent fixed for five years with a £995 fee for those with just a 10 per cent stake to put down.

Andrew Hagger is an independent personal finance analyst from moneycomms.co.uk