Interest rates on personal loans may be at record lows for those seeking to borrow £7,500 or more, but it’s not all good news with some lenders charging 20% APR plus for customers who only want to borrow a smaller sum.
Andrew Hagger of Moneycomms.co.uk crunches the numbers and takes a look at the personal loans market for sums of £5,000 or less and highlights the best and worst value options.
The battle for personal loan custom is as intense as ever, however the problem is that many lenders are focussing all their efforts and marketing budgets on the higher value end of the market.
Rates are at a five year low if you want to borrow £7,500 or more, with five lenders currently fighting to be top dog and advertising representative interest rates of between 5.7% APR and 5.9% APR.
For lower value loans it’s a very different story, with the majority of lenders charging double digit rates and in some cases 20% APR or more.
There are cheaper options available, but my research shows you’ do well to steer clear of the established providers if you want get the best deals.
There are three borrowing options that stand out, if you want to borrow £5,000 or less, as follows:
MBNA –Rate for Life – this isn’t strictly a personal loan, but there’s nothing to stop you using this fixed rate for life credit card in the same way you would as a loan.
If you transfer your balance to the card and set up a monthly standing order for your current account, it works exactly the same as a personal loan. The interest rate is 5.9% APR for as long as it takes you to clear the balance and even including the one off 1.5% balance transfer fee, it remains one of the cheapest ways to borrow a smaller sum.
Zopa – the first peer to peer lender in the UK is now in its eighth year and RateSetter one of the more recent lenders in the peer to peer market both offer some of the best value deals (sub 10% APR) when compared with some of the more established loan providers.
Just because you’re not familiar with the names, it doesn’t mean you should discount them – the peer to peer market has quickly established itself as a credible alternative to the big banks – and the numbers in the tables below speak for themselves.
The calculations below highlight the monthly cost and total repayable in four different scenarios (£3000 x 3 years and 5 years) and (£5000 x 3 years and 5 years).
Although there is still money to be saved at the £5,000 level, it’s the £3,000 band where the three providers named above really stand out.
To put it into context, if you’re borrowing £3,000 over 3 years, you can save up to £22.79 per month with the MBNA rate for life option on your monthly repayments and as much as £821 in total over the term.
For £3,000 over five years the monthly cost can work out at up to £24.88 cheaper and the total cost saving a staggering £1493.
Once again it shows that by thinking outside the box or taking advantage of deals from new lenders, you can get a much better deal than you’ll find on offer from a big high street lender.
Don’t just sign up with you own bank without looking at all the alternatives, you could be paying way over the odds and end up out of pocket – shop around for the lowest rate, it just shows there are some top loan deals out there and not just for those wanting to borrow £7,500 plus.
Loan cost examples
| Loan £3000 x 3 Years | |||
| Lender | Rate (APR %) | Monthly | Total payable |
| MBNA Rate for Life | 5.9% | £92.47 | £3329 (inc £45 fee) |
| Zopa | 9.5% | £95.53 | £3439 (inc £150 fee) |
| RateSetter | 9.7% | £96.38 | £3470 (inc £130 fee) |
| Sainsbury’s Bank | 13.9% | £103.48 | £3725 |
| Tesco Bank | 15.9% | £103.77 | £3736 |
| M&S Bank | 16.9% | £105.05 | £3782 |
| HSBC | 18.9% | £107.61 | £3874 |
| NatWest | 20.9% | £110.17 | £3966 |
| Halifax | 24.9% | £115.26 | £4150 |
| Loan £3000 x 5 years | |||
| Lender | Rate (APR %) | Monthly | Total payable |
| MBNA Rate for Life | 5.9% | £58.73 | £3524 (inc £45 fee) |
| Zopa | 9.8% | £62.85 | £3771 (inc £180 fee) |
| RateSetter | 9.8% | £63.45 | £3807 (inc £150 fee) |
| Sainsbury’s Bank | 13.9% | £69.95 | £4197 |
| Tesco Bank | 15.9% | £71.12 | £4267 |
| M&S Bank | 16.9% | £72.50 | £4350 |
| HSBC | 18.9% | £75.26 | £4516 |
| NatWest | 20.9% | £78.04 | £4682 |
| Halifax | 24.9% | £83.61 | £5017 |
| Loan £5000 x 3 years | |||
| Lender | Rate (APR %) | Monthly | Total payable |
| Zopa | 6.9% | £153.61 | £5530 (inc £60 fee) |
| MBNA Rate for Life | 5.9% | £154.16 | £5550 (inc £75 fee) |
| M&S Bank | 7.3% | £154.53 | £5563 |
| Tesco | 7.8% | £155.60 | £5602 |
| RateSetter | 8.6% | £158.07 | £5691 (inc £130 fee) |
| Sainsbury’s Bank | 8.0% | £158.15 | £5693 |
| HSBC | 16.9% | £175.09 | £6303 |
| NatWest | 17.9% | £177.22 | £6380 |
| Halifax | 20.9% | £183.61 | £6610 |
| Loan £5000 x 5 years | |||
| Lender | Rate (APR %) | Monthly | Total payable |
| MBNA Rate for Life | 5.9% | £97.88 | £5873 (inc £75 fee) |
| Zopa | 7.2% | £99.03 | £5942 (no fee) |
| M&S Bank | 7.3% | £99.16 | £5950 |
| Tesco Bank | 7.8% | £100.27 | £6016 |
| Sainsbury’s Bank | 8.0% | £102.11 | £6127 |
| RateSetter | 9.0% | £103.79 | £6227 (inc £150 fee) |
| HSBC | 16.9% | £120.84 | £7250 |
| NatWest | 17.9% | £123.14 | £7388 |
| Halifax | 20.9% | £130.06 | £7804 |
Information taken from lender websites & compiled by Moneycomms.co.uk 03.10.2012
ENDS
- 0% Credit Card Balance Transfer terms on the slide since lockdown - July 13, 2020
- Mainstream credit card rates unchanged in 2020 – for now - June 16, 2020
- Best Buy Fixed Rate Savings – 22nd May - May 22, 2020
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