New low personal loan rates

Loan rates are dropping. Take a look at these top deals.

Some good news for borrowers: loan rates are falling.

Yes, the interest you’ll pay on an unsecured loan has been gradually coming down for the past year. Just eight months ago, the best rate you could hope to get your hands on for a £10,000 loan was around 6.7%. This dropped to 6.3% in a matter of months. And now it has come down even further.

6.0% loans

The best loan currently around for those wishing to borrow £7,500 to £15,000 for between one and five years comes from M&S Money at 6.0% APR. So a £10,000 loan over five years would set you back £192.58 per month, giving a total repayment of £11,554.80.

Two supermarket banks, Sainsbury’s Finance and Tesco Bank offer the next best deals priced up at 6.1%. Opting for one of these deals over the M&S loan will push up your monthly repayments by just 45p per month, bringing the total amount repayable to £11,581.80 – £27 more than the 6% loan.

HSBC’s 6.2% loan is also worth a look. However you will have to be an existing customer of the bank to be eligible for this deal.

*Excluding optional payment holidays.

Smaller loans

If you’re after a smaller sized loan over a shorter period you should expect to pay a premium on the above rates. In fact, the cheapest deal for £5,000 over three years according to our comparison centre comes from the peer-to-peer lender Zopa with a 7.6% rate. Unlike a regular bank, Zopa puts borrowers directly in contact with lenders, credit checking everyone along the way.

For mainstream lenders, Sainsbury’s Finance has the cheapest small loan rate at 7.8%. This would see you repay £155.61 each month with a full amount repayable of £5,601.96 – £18 more in total than the Zopa loan.

Tesco Bank comes next with an 8.3% rate.

Just typical

When taking out a personal loan it’s important to remember that the rate listed is not necessarily the rate you’ll be given. That’s because the APRs are almost always ‘typical’, and hence the lender only has to give the listed price to 51% of people who apply for the loan. The remaining 49% can expect to receive a higher rate. And if you have a few black marks in your credit history, you should expect to be among this losing half.

Make sure you check your credit report before you apply; head over to Credit Expert where you can get a free 30 day trial.

Here are few more loan dos and don’ts…

Dos and don’ts

Do think long and hard before borrowing. Loans can be a useful way to spread the cost of large purchases, but they should never be entered into lightly.

Make sure you consider all the alternatives to a loan. For smaller amounts a 0% purchase credit card could be a cheaper option. Nationwide currently has the longest interest-free period: 18 months on the Select Credit Card. Or you could steer clear of borrowing altogether and simply get yourself a savings account and start stashing away some cash. You may be surprised how quickly it builds up.

Do shop around. Use our loan calculator to investigate all possible options before settling on a product.

Don’t opt for a payment holiday. It may be tempting to duck out of repaying your loan for a few months. But payment holidays don’t stop interest being accrued, meaning you’ll pay more in the long run.

Don’t securitize. Opting for a secured loan may allow you to borrow more. But if you default you could potentially lose your house or car. Not a risk worth taking in my book.

More: The smallest interest rate may not equal the cheapest loan | OFT launches review into payday lending