Personal loans: A price war makes this best time to borrow

It has never been cheaper to take out a personal loan, report Chiara Cavaglieri and Julian Knight

In some ways it is almost as if the credit crunch never happened. Buoyed by a strengthening economy and funds pumped out by the Bank of England, providers are indulging in a personal loan price war.

If you plan to borrow more than £7,500, rates have fallen below the magic 5 per cent mark.

As a result, interest rates are now lower than they were before the great crash and not far ahead of inflation. It has never been cheaper to borrow money.

Hitachi Personal Finance has a brand-new sale on its range of personal loans with rates as low as 4.8 per cent for £7,500 to £10,000 taken over two to five years. Hitachi has even said it expects one-in-10 applicants to get a rate that is better than the advertised APR, but these cut-price rates are only available until 31 October

This move will come as a welcome opportunity for borrowers who missed out on the Sainsbury's Bank limited offer of 4.8 per cent for loans of £7,500 up to a more generous £15,000 and repaid in three years – the cheapest ever seen. This offer has now been pulled, but Clydesdale Bank and Derbyshire Building Society both join Hitachi on the best-buy tables, offering loans of 5 per cent, and only last month, Tesco cut the rate on its £15,001 to £25,000 loans to a market-leading 6.9 per cent APR, down from 7.2 per cent.

"Smaller loans are still quite expensive – that market hasn't really returned since the credit crunch – but loans over £7,500 have fallen to record lows," says Paul Lawler of comparison site MoneySupermarket.com.

Even with this level of competition, however, you could miss out if you have any blemishes on your credit record. Every time you apply for a loan, the prospective lender has a look at your repayment record with a credit-reference agency. If your report is a blank book (because you haven't borrowed before), or you have a history of missing payments, you will have problems.

Being refused credit isn't actually recorded on your report, but it can end up being part of a vicious circle because every application is recorded on your file and could therefore negatively impact your chances of being accepted for future credit.

"A lot of application footprints in a short space of time typically indicate financial stress, desperation or fraud – especially if other information supports that – so it's something that we should all try to avoid," says James Jones of credit-reference agency Experian.

All advertised loan and credit-card APRs are representative which means that only 51 per cent of successful applicants are guaranteed to get the headline rates and everyone else may end up being offered a more-expensive loan than they expected. Unfortunately, the application search will continue to show on your credit report for 12 months whether or not you cancel the loan agreement at the first opportunity.

With this in mind, it pays to review your credit report regularly and particularly before you make an important application. This will give you a chance to check for and correct any errors. It may also highlight other ways to strengthen your record, for example, by breaking ties with an ex-partner or registering on the electoral roll. If you are turned away by a lender, ask them why and find out which credit-reference agency they consulted. Do not apply for credit elsewhere until you have checked your report.

Use online tools such as the MoneySupermarket Smart Search to perform a "soft search" for loans without leaving a footprint on your credit file. This matches your credit details against the market to determine which loans you are most likely to get. There is no guarantee but it does use lenders' public-lending criteria to give an indication of who is more likely to accept you. Experian also offers CreditExpert customers access to their Credit Matcher service in order to help people avoid wasted applications.

The rule of thumb with any debt is to borrow as little as possible and repay as quickly as possible.

You can spread the cost of a loan over a longer period to reduce your monthly repayments, but in the long run you'll pay much more in interest. As an example, borrowing £10,000 at 6 per cent over three years would cost you £926 in interest, but if you paid it over five years, the interest rises to £1,556. Having said that, lenders do set their loan rates within specific boundaries and it is sometimes cheaper to borrow a few quid more to get the best rates – so if the rate for borrowing £7,000 is much more expensive than the rate for a £7,500 loan, borrow more to bag the cheaper deal.

If you want to borrow a smaller sum of money unsecured personal loans look expensive, with many lenders charging well into double figures. Smaller loans are typically used to consolidate debt and pose a higher risk to nervy lenders, whereas larger loans borrowed over a long time are often used for home improvements or buying a car and are more likely to be repaid.

Andrew Hagger of Moneycomms.co.uk says: "When it comes to lower-value personal loans they're seemingly not interested and extremely uncompetitive.

"Interest rates are at record lows for those seeking to borrow a five-figure sum, but customers who only want a personal loan for a smaller amount are getting a raw deal."

A better idea is to use a credit card with an introductory offer. Credit-card providers have been falling over themselves to take the top spot, and right now the Tesco Clubcard credit card gives you 0 per cent interest for 18 months on new purchases.

If you want to consolidate your debts instead, the Barclaycard Platinum card is interest free for a mammoth 28 months with a 3.5 per cent fee, and the Halifax Balance Transfer card offers 27 months at 0 per cent with a 2.5 per cent fee.

Providing you can clear the debt before the interest-free period ends, this is one of the best options for short-term borrowing.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
The slice of Prince Charles and Princess Diana's wedding cake and the original box from 29 July 1981
newsPiece of Charles and Diana's wedding cake sold at auction in US
News
James Argent from Towie is missing, police say
newsTV star had been reported missing
Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
Arts and Entertainment
Inside the gallery at Frederick Bremer School in Walthamstow
tvSimon Usborne goes behind the scenes to watch the latest series
PROMOTED VIDEO
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
newsThe industry's trade body issued the moratorium on Friday
News
Winchester College Football (universally known as Winkies) is designed to make athletic skill all but irrelevant
Life...arcane public school games explained
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
Life and Style
Silvia says of her famous creation: 'I never stopped wearing it. Because I like to wear things when they are off the radar'
fashionThe fashion house celebrated fifteen years of the punchy pouch with a weighty tome
News
i100(and it's got nothing to do with the Great British Bake Off)
News
Angelina Jolie with her father Jon Voight
peopleAsked whether he was upset not to be invited, he responded by saying he was busy with the Emmy Awards
News
Bill Kerr has died aged 92
peopleBill Kerr appeared in Hancock’s Half Hour and later worked alongside Spike Milligan and Peter Sellers
News
news It's not just the world that's a mess at the moment...
Sport
footballPremiership preview: All the talking points ahead of this weekend's matches
News
Keira Knightley poses topless for a special September The Photographer's issue of Interview Magazine, out now
people
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
News
i100
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Life and Style
tech
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Financial Technical Consultant (C++, C#, Finance, MSc, PhD)

    £50000 per annum: Harrington Starr: Financial Technical Consultant (C++, C#, F...

    Data Scientist (SQL,Data mining, data modelling, PHD, AI)

    £50000 - £80000 per annum + benefits+bonus+package: Harrington Starr: Data Sci...

    SAS Business Analyst - Credit Risk - Retail Banking

    £450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...

    Project Manager - Pensions

    £32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone