Get a loan at 6.9%

There's a new market leading personal loan...

A price war is rumbling on in the personal loans market!

It all kicked off late last year when Sainsbury’s moved its unsecured loan down to 7.4% and rates have been dropping ever since then.

The current market leader is Marks and Spencer – with a 6.9% rate, closely followed by Sainsbury’s 7% loan.

This is the cheapest loan rate we’ve seen in years here at lovemoney.com – and it may not be around for long.

But is it as good as it appears to be? Let’s take a closer look...

The best deals

M&S’s 6.9% rate applies to loans of up to seven years between £7,500 and £14,999. So if you borrowed £10,000 over five years you’d repay £196.56 per month and the total amount of interest paid would come to £1,793.60.*

But there are a few other options out there if you don’t fancy borrowing from M&S.

Here’s a table outlining the next best deals for a £10,000 unsecured loan paid back over five years:

Loan

Typical APR

Total amount repayable (TAR)*

Monthly repayment*

Sainsbury’s Finance (Nectar card holders only)

7.0%

£11,820.00

£197.00

Alliance & Leicester

7.1%

£11,846.40

£197.44

Nationwide

7.3%

£11,899.80

£198.33

Tesco Bank

7.4%

£11,926.20

£198.77

As you can see, the next best deal is the Sainsbury’s Finance 7% loan – which works out at only 44p more expensive per month than the M&S deal. So over the full five years you’ll pay an extra £26.40 in interest if you decide to go with Sainsbury’s and not M&S.

Recent question on this topic

You will need to have a Nectar card to take out a loan with Sainsbury’s, but you can pick these up for free in any store so it’s hardly a problem!

It’s also worth noting that all of the APRs for these loans are typical. This means that the advertised rate does not apply to everyone. So if you have a dodgy credit rating you may find yourself with a higher rate of interest. Check your credit report before you apply – we’ve got lovemoney.com a free 30-day trial with Credit Expert (just make sure you cancel before the 30 days are up).

And if mid-way through your loan repayments you decide to clear the balance in full you will have to pay a fee for the privilege of doing so. This usually ranges from 30 days to two months interest on the remaining balance.

Do you really need one?

It sounds obvious but before taking out any loan you should really ask yourself whether you actually need the money.

Loans can work really well if you need to make a vital purchase or you genuinely run into financial hardship – but you should always be 100% sure that you can pay back what you’ve borrowed.

There are other ways to get your hands on some cash – read our how to make some extra money guide for some top tips.

And let’s not forget that you could just save up the money you need for a big purchase. By getting yourself a decent savings account and paying into it every month you could soon have stashed away enough to avoid going anywhere near a loan.

Getting yourself a purchase credit card with a 0% APR period is another alternative to a loan if you’re after a smaller amount of money. The M&S Credit Card is now offering 15 months of interest-free spending! So you won't have to worry about the interest stacking up during those 15 months! Be warned though, if you do take out a 0% purchases card make sure you can pay off the balance in full before the interest kicks in or you’ll be hit with some hefty charges.

A permanent low rate credit card is another alternative if you’re not confident that you’ll be able to clear all your debt before the 0% period ends. Read more about these cards at A sensible credit card in a world of tarts!

John Fitzsimons looks at the crucial things to remember before you apply for a loan

Tips

If you decide that taking out a personal loan really is the best option then there are still a few things you need to keep in mind when shopping around for a good deal.

First off, make sure you avoid secured loans. These are loans that require you to put up an asset such as your house or car as a guarantee against the borrowed amount. You’ll be able to borrow a larger sum but if you default on a payment you could lose the asset – this isn’t worth the risk in my opinion!

You should also make sure you take out the right sized loan and arrange to pay it back over the shortest period that is practically possible. This will reduce interest rates and keep costs to a minimum.

Avoiding any payment holidays will also keep charges down as you will still be charged interest on the loan, even if you’re not making any payments towards it. This means that it will take longer to clear the loan or you’ll have to increase your monthly payments when the holiday ends.

*These figures exclude interest accumulated during optional payment holidays.

This article has been updated with new loan rates.

More: Compare loans at lovemoney.com | Best ways to borrow £250 to £25,000! | Loan rates are racing up

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