Personal loans: Six of the best

By Kate Saines

If you are looking for a good deal on a personal loan, now is the ideal time to pounce.

For the New Year has brought with it a bout of competitive rate slashing which has meant personal loan rates are looking more attractive than they have done for a long time.

In fact, according to figures released by Moneysupermarket.com, the rate cuts means the average rate for a loan of between £7,500 and £15,000 is now at the lowest it has been since October 2007.

Currently, if you take out a £7,500 personal loan with M&S Money you could pay as little as six per cent interest – the lowest rate it has offered for five years.

Meanwhile, head to Tesco Bank and you’ll find a rate of 6.1 per cent on offer for loans of between £7,500 and £14,999.

And you’ll not be surprised to hear the other lender offering a competitive deal in this cut-throat personal loans market is Sainsbury’s Bank which has reduced its Standard Personal Loan rate to 6.1 per cent.

Kevin Mountford of Moneysupermarket.com said: “There is no doubt the appetite for lenders to attract new customers has increased and the news average loans rates have dropped significantly as competition in the market heats up is great for those needing to borrow at the moment.”

He thinks even more lenders will come forward to reduce rates over the next few weeks.

This is great news for borrowers, particularly at a time when managing debt is at the forefront of many of our minds – particularly those of us who have had an over-indulgent Christmas.

But the fact that debt is such a problem for so many of us means finding the right loan is extremely important. And, often the correct loan is not always the one with the lowest rate.

The cut-price deals available at the moment only apply to loans of £7,500 or above. If you need to borrow less you’ll find rates are not so attractive.

Independent financial research company Defaqto has found average interest rates for loans of £5,000 have actually increased over the last 12 months.

Meanwhile, the company’s experts have advised potential borrowers to look beyond the headline rate when arranging a loan to ensure the product has the features they need.

It’s important also to remember that headline rates are just that – headlines. In other words, the best possible deal someone with the most exemplary credit rating could achieve. Most of us will probably end up paying a bit more.

So when looking for a new loan whilst the comparable price should almost certainly be considered, there are other factors which should be taken into account.

David Black, banking insight analyst at Defaqto, said borrowers should find out, for example, whether the lender has a facility which allows them to get an ‘in principle’ quote without leaving a footprint on their credit record.

This is quite important if you are planning on shopping around because just applying for a quote will require the lender to access your record, a process which will leave a credit application on your report.

Currently Nationwide Building Society, Ratesetter.com and Zopa.com offer this facility.

Potential borrowers should also establish whether the loan has a fixed or variable interest rate, Mr Black advised.

Defaqto’s statistics reveal 94 per cent of unsecured loans have a fixed interest rate. This option provides the borrower with more clarity and certainty on their monthly repayment plan and therefore helps with budgeting.

Anyone considering a loan should also find out whether there are any fees or charges, Mr Black said.

“Twenty per cent of unsecured loans charge an arrangement fee,” he explained. “Arrangement fees currently vary from £0 up to £200.

“If someone wants to repay the loan early, will an early repayment charge be levied and, if so, how much will it be?”

Defaqto’s figures show 42 per cent of loans have an early repayment charge of 30 days or one month’s interest, while 36 per cent charge between 58 and two months’ interest.
If you think you might be able to pay the loan back earlier, 19 per cent of those on the market to not levy the charge.

And there’s something else worth considering, said Mr Black, and that is whether the loan offers a deferred start. The majority of loans do not, but around a quarter of those available offer it as an option.

There are even loans available which have a compulsory deferred start. And the rare few offer the facility interest free.

Six of the best personal loans

M&S Personal Loan

Representative APR: 6%
Details: Available for personal loans of between £7,500 and £15,000 over a period of 12 to 60 months.
For a loan of £7,500, repaid over 36 months, you’ll pay £227.62 per month and £8,194.32 in total. Borrowers taking out £15,000 over 60 months will pay £288.87 monthly and £17,332.20 in total.
Borrowers must be aged 30 or over or must be a homeowner. There is an early redemption charge.

Tesco Bank loan

Representative APR: 6.1%
Details: Available for loans of between £7,500 and £14,999. A borrower taking out a loan of £10,000 will pay £234.55 per month over a period of 48 months, making the total repayment £11,258.40.
This loan, which includes an early redemption charge, provides borrowers with the option to take a payment break.

Sainsbury’s Standard Loan

Representative APR: 6.1%
Details: This deal is available to Sainsbury’s shoppers owning a Nectar card who wish to borrow between £7,500 and £14,999.
There is the option to take a two month repayment break at the start of the loan. A customer borrowing £10,000 over four years would make repayments of £234.56 per month, which is £11,259 in total.
An early redemption charge applies to this loan.

HSBC loan

Representative APR: 6.2%
Details: Available to HSBC current account holders for loans of between £7,000 and £15,000. This deal is available as part of the bank’s January sale so will only be available until January 31st after which the headline rate will rise to 6.9 per cent.
A customer taking out a £7,000 loan over 30 months would pay £251.95 monthly and £7,558.46 in total.

Nationwide loan

Representative APR: 6.4%
Details: This is available for loans of between £7,500 and £14,999 taken out over a period of time of up to five years.
A £7,500 loan repaid over three years would require monthly repayments of £228.9, which is £8,240.76 in total.

Zopa

Representative APR: 7.7 per cent
Details: This rate is available for a loan of £5,000 repaid over three years. But Zopa is also offering rates of six per cent to customers taking out £7,500 who repay this amount in three years.
There is a borrowing fee for Zopa loans, but there are no penalties or admin charges if you repay your loan early.