We've analysed 79 different personal loans to bring you the best (and worst) in unsecured borrowing, so choose wisely&
Today, I decided to do some research in order to find the best and worst unsecured loans in the UK. Hence, I turned to Moneyfacts, the holy book of financial writers, because the data it provides is accurate, comprehensive and timely, as well as being completely independent and unbiased. It covers 79 different loans and here's what I discovered (based on a loan of £5,000 over three years, without rip-off payment protection insurance):
Best Buys: the eight cheapest loans (ranked by total amount repayable, TAR)
Lender | Typical | TAR (£) |
|---|---|---|
| Direct Line | 5.6 | 5,428.08 |
| Moneyback Bank Apply via the Fool | 5.6 | 5,435.28 |
| Masterloan | 5.7 | 5,439.60 |
| Lombard Direct | 5.8 | 5,443.56 |
| Northern Rock* | 5.7 | 5,443.56 |
Cahoot | 5.8 | 5,447.52 |
Alliance & Leicester | 5.9 | 5,458.32 |
Masterloan (telephone) ** | 5.9 | 5,459.04 |
** same rate given to all customers
Don't Buys: the five most expensive loans
Lender | Typical | TAR (£) |
|---|---|---|
| Secure Trust Bank** | 19.5 | 6,509.52 |
| Barclays | 14.9 | 6,160.68 |
| Barclaycard | 14.9 | 6,160.68 |
| Bank of Scotland | 9.2 | 6,149.16 |
Halifax | 9.2 | 6,149.16 |
As you can see, there are some big names in the Don't Buy table, with two of the UK's Big Five banks collecting awards in this category! Here's what else my research revealed:
1. The difference between the cheapest and most expensive loan was almost £1,082, or over £30 a month for three years. Hence, it pays to shop around before choosing a loan, or your interest bill could triple!
2. The average interest bill for a £5,000 loan over three years came to £572, ranging from £428 at Direct Line to a whopping £1,510 at Secure Trust Bank (which caters for borrowers who can't get credit from high-street lenders).
3. The very best deals were reserved for customers who apply online, followed by telephone applications - and going into a bank branch is definitely a bad idea!
4. Almost all lenders charge typical rates, which means that the rate you get depends on your individual personal circumstances. Although this enables lenders to advertise low headline rates, risk-based pricing can be manipulated, as I explained in 'Typical' Rates Are Hardly Typical. The lenders which give the same rate to all borrowers are Bank of Ireland (GB), Coventry BS, Egg, First Direct, Goldfish, Morgan Stanley, Nationwide BS, the Post Office and Secure Trust Bank.
5. Almost all lenders charge early redemption penalties if borrowers repay their loans early. The lenders which don't charge redemption penalties are American Express Bank, Coventry BS, Egg, Goldfish, Leeds BS, Morgan Stanley, Northern Rock, the Post Office, Ulster Bank (NI) and Virgin Money. However, none of these offered particularly competitive interest rates.
Finally, before you rush off to apply for a mouth-wateringly cheap loan, read my twelve tips on how to find the perfect loan. Happy hunting!
More: Use the Fool to compare personal loans, compare credit cards and compare savings accounts!
Disclosure: Cliff owns shares in HBOS, parent company of Halifax and Bank of Scotland.