Clydesdale offers new top rate for small loans

If you want to borrow a relatively small amount of money, personal loans have become cheaper.

In a perfect world, you’d never borrow anything. After all, interest payments are money you’ll never see again.

But if you feel you must borrow, a personal loan is normally one of the better options.

Trouble is, the best rates are usually only on offer for loans between £7,500 and £15,000. That’s true of the current market-leading loan from Derbyshire Building Society, which only charges 5.4%.

Top personal loans for £10,000 over five years

So I’m pleased to see that Clydesdale Bank has cut its rate for smaller loans – between £5,000 and £7,500. Clydesdale’s new rate is for small loans is just 7%, a market-leading rate that is only matched by Yorkshire Bank. (Yorkshire and Clydesdale are both part of the same corporate group.)

Here’s how Clydesdale compares to other lenders for small amounts:

Top personal loans for £6,000 over five years

These are all pretty attractive rates, but sadly, they’re not available to everyone. If your credit rating is less than perfect, you may be offered a loan with a higher interest rate or no loan at all. Find out more about credit ratings in What REALLY damages your credit rating.

And even if Clydesdale is willing to lend to you at 7%, you should consider a couple of other options before you make a final decision to borrow.

Other options

One alternative is to borrow via one of the peer-to-peer lenders such as Zopa or RateSetter. These sites enable you to borrow from a group of private individuals, so you’re cutting the banks out of the transaction. The rates can be as low as 6.9%.

And then there’s credit cards. If you’re borrowing to make a big purchase, you might be able to use a 0% new purchases card instead. If you got a Tesco Clubcard for Purchases and then used it to buy an expensive item, you wouldn’t have to pay any interest on the resulting debt for as long as 16 months!

Please note that the 0% period begins when you take out the card, not when you make the purchase. What’s more, some applications won’t be successful, and even if you do get a card, you may not get a credit limit as large as £6,000 – if that’s what you wanted to borrow.

Another option is a credit card money transfer. Some 0% credit cards allow you to transfer money from your credit card to your current account, and won’t charge any interest on the transfer for a period of time.

For example, if you transfer money from a MBNA 22 Month Platinum Visa card to your current account, you won’t have to pay any interest for 22 months. Admittedly, you’ll have to pay a 4% fee when you make the transfer, but that’s still a pretty cheap way to borrow.

Once again, not all applicants will get this card, and there aren’t many other cards that offer money transfers.

Payday loans

If your credit rating is weak and you’re unable to get any of the products I’ve looked at so far, please don’t go for a payday loan. The interest rates on these loans are horrendously high, and even if you only borrow for a couple of weeks, I still think payday loans are a rip-off. Read more in Payday loans still suck.

When all is said and done, borrowing at 7% from Clydesdale is a sensible way to borrow. Taking out a payday loan that charges more than 4,000% definitely isn’t.

More on borrowing:

Derbyshire BS cuts personal loan rate again!

Overpay your loan without penalty

What is a Crisis Loan?

What is a Budgeting Loan

The best alternatives to payday loans

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