Personal loans of the week
While less flexible than credit cards, personal loans allow you to borrow, repaying a set each month for a fixed period of time.
Rates are near historic lows, and can be much cheaper than 0% credit card deals for some borrowers.
The interest rate you’ll pay depends on how much you borrow and how creditworthy you are in the eyes of lenders.
Typically the cheapest loans are for people borrowing between £5,000 and £15,000, though prices vary from between providers. There is a lot of choice for consumers as banks, building societies, motor manufacturers and peer-to-peer lenders all offer personal loans.
Remember the advertised APR is representative, which means lenders only have to offer the advertised rate to 51% of successful applicants. People with a poor credit score might be rejected or offered a loan at a higher rate.
Here’s a round-up of the week’s best headline rates:
£2,500 over two years
Metro Bank 5.9% APR
This is the cheapest short-term loan at 5.9% APR representative, but borrowers must be existing customers. Borrowing £2,500 over two years costs £110.69 a month and borrowers will repay £2,656.53 in total.
RateSetter 7.1% APR
If you’re not a Metro Bank customer, the best deal comes from RateSetter. It charges 7.1% for a £2,500 loan over two years. Repayments are £112.04 a month, and the overall interest due is £189.08, plus the original £2,500 loan. This loan is only available online.
£7,500 over three years
TSB 2.9% APR
This is the best pick, offering monthly repayments of £217.78 for 36 months. The total repayable is £7,840.03 of which £340.03 represents interest charges.
Sainsbury’s Bank 3% APR
This’ll cost £218.11 per month. Over the course of the loan borrowers will repay £7,851.93, including £351.93 interest. The rate is subject to your credit score and some borrowers will be charged more.
£20,000 over five years
Cahoot 3% APR
Larger loan rates are also highly competitive, the best coming from Santander-owned brand Cahoot. This will charge 3% representative to people borrowing £20,000 over five years. That’ll cost £359.37 per month and £1,562.43 over the life of the loan. You’ll be charged 30 days’ interest to settle the loan early.
Yorkshire Bank 3% APR
Also on offer is a loan from Yorkshire Bank at 3%.This will cost £359.37 per month, with £1,562.43 total interest payable over the 20-year term.
Find the best loan for you with Moneywise's loan comparison tool.
Your credit score is a three-digit number (ranging from a low of 300 to a high of 850) calculated from the information in your credit report. Your credit score enables lenders to determine how much of a credit risk you are. Basically, a low credit score indicates you present a higher risk of defaulting on your debt obligations than someone with a high score. If you have a low credit score, any products you successfully apply for will carry a higher rate of interest commensurate with this risk.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.