Neil Faulkner rounds up the best personal loans on the market.
Earlier this week I gave my opinion on credit cards for the first time in 14 months. I'd like now to update you on personal loans . To be precise: unsecured personal loans.
Why not secured loans?
Secured loans usually fit into the `bad' category, whereas many unsecured loans are good.
Secured loans are secured against your house, which means it's easier for your lender to take your home if you miss payments. OK, homes might not be worth a great deal anymore, but they're still useful for sheltering your belongings and storing your children.
Secured loans also tend to be more expensive, plus the interest rates are variable, meaning the lender can increase them at any time. In short, we're not fans of secured loans at The Fool, so think very carefully before getting one. If you find these are the only loans you're being offered, you should seek advice before you buy. (See the box, top right.)
Unsecured loans
Unsecured-loan interest rates have actually come down a tiny fraction since the start of the month. The best rate a few weeks ago was 7.8% APR and now it's 7.6%. (Based on a £10,000 loan over five years.) There are quite a few lenders offering similar prices. The Fool's pretty much fully-comprehensive search of the market shows that the four cheapest are all within £1 per month of each other. The next seven are just £1.33 per month more than the cheapest loan. I'll list these eleven now:
The top eleven unsecured loans
Loan | Total amount repayable | Monthly repayment | APR |
|---|---|---|---|
Your Personal Loan | £11,980 | £199.66 | 7.6% |
AA Member's Only Loan | £12,006 | £200.10 | 7.7% |
Lombard Direct | £12,032 | £200.54 | 7.8% |
£12,032 | £200.54 | 7.8% | |
£12,059 | £200.99 | 7.9% | |
AA Online Loan | £12,059 | £200.99 | 7.9% |
Abbey Online | £12,059 | £200.99 | 7.9% |
Asda Personal Loan | £12,059 | £200.99 | 7.9% |
Black Horse Personal Loan | £12,059 | £200.99 | 7.9% |
Post Office Personal Loan | £12,059 | £200.99 | 7.9% |
Tesco Personal Finance Personal Loan | £12,059 | £200.99 | 7.9% |
Based on a five-year loan of £10,000, without the hugely over-priced payment-protection insurance added!
As you can hopefully see, the total cost of the cheapest four loans during the whole loan term is within £52 of each other. The remaining seven cost £79 more over the five-year period. That gives us some choice.
If you're record isn't perfect, use tactics
In the past I've recommended my `tactical applications' technique. This means if you've got a slightly tarnished credit record then you apply for slightly worse loans. If your record is worse than merely `slightly' tarnished, you apply for yet worse rates. And if your record is worse even than that, you should seek advice before getting any loan at all; another loan may seem like your only choice for your money woes, but in reality it's rarely the best option.
The rationale for `tactical applications' is to increase the chances of your application being successful. If you apply for credit and it's rejected, this marks your credit record, which in turn makes it harder for you to get credit if you apply again within the next six months. Therefore it helps to get it right from the start.
It's easier said than done...
Thing is, banks have become particularly tight, lending out less of the money they have. (Or, as many of you following the credit crunch may realise, the banks are now lending less of the money they don't have.) To take that into account, I've downgraded the sorts of loans we should go for.
Now, I think that those of us with perfect records only should go for the cheap loans listed above. Everyone else should consider loans around 8%-10% APR. Examples (that I'm just choosing from a list of Fool loan partners, but there are many more if you do a full loan search in our loans centre) include:
Alternatives for people with imperfect credit records
Loan | Total amount repayable | Monthly repayment | APR |
|---|---|---|---|
£12,273 | £204.55 | 8.7% | |
£12,595 | £209.91 | 9.9% | |
£12,595 | £209.91 | 9.9% |
Please note that my recommendation you apply for loans of 8% to 10% is simply my best educated guess, based in equal measure on instinct and limited data. Lenders are notoriously secretive about who they are granting loans to and who they're declining.
I think that, in the current market, anyone with a record that's worse than merely slightly tarnished should get some free advice before applying for any loan at all. 8% to 10% is already on the expensive side, so you don't want to apply for anything worse without getting someone else's opinion.
More: Get fantastic, free advice on personal loans from our Dealing with Debt community | Try also National Debtline, which has a section for England & Wales, and another dedicated to Scotland | Citizens Advice has helped many Fools in the past, too.