Finding the cheapest interest rate for loans

What is a personal loan?

If you are looking to borrow money for home improvements, buy a car, or reorganise your finances, then you could consider searching for a cheap personal loan.

A personal loan is a fixed sum of money that you borrow from a lender, such as a bank, without having to put up an asset for collateral. You then pay it back over a set period of time at a fixed interest rate. 

When you are looking for a new loan, you should compare the cheapest interest rates available. You can do this using our loan comparison tool on our Personal Loans page. This compares options across the market and helps you narrow down your search to find the best deal.

How do I get the best personal loan?

The cheapest personal loans are those with the lowest interest rate once you’ve accounted for other charges. The very best deals are available to people with excellent credit ratings. If you’ve had credit problems in the past, you may still be able to get a loan, although the interest rate is likely to be higher.

To explore your options if you have a poor credit score, you can check out our guide to Bad Credit Loans.

Before you apply for a personal loan you should try to get your credit rating into the best shape possible. This means making sure you are on the electoral register, ensuring that you pay bills on time, and that you are not in arrears for any credit agreements.

Find out more about Credit reports and credit scoring with our guide to What affects credit rating. 

What types of cheap loans should I get? 

While there are several types of loans depending on your purpose for the loan, there are two different categories of loan that you can apply for in the UK:

• Unsecured loans - unsecured loans are when you borrow money without putting any assets up as collateral. These are more commonly known as personal loans. Typically, you can borrow small amounts up to £50,000, but some lenders will offer more. Interest rates may be tiered depending on how much you want to borrow. Use our comparison checker to get the best deal.

• Secured loans – this is when you borrow money secured against an asset you own, most often your home. These are more suitable for long-term borrowing, with typical payment terms of between 5 and 35 years. The interest rates on these mortgage loans will be lower than a personal loan. However, if you do not keep up with repayments your home will be at risk

How does a cheap interest rate loan work?

When you receive a loan, you have to pay it back over a set amount of time, which is known as the term of the loan.

On top of the capital you’ve borrowed, you also pay the lender an agreed interest rate over the term of the loan. The faster you repay the money you have borrowed, the less interest you will pay in total. 

You agree the term and the interest rates at the start of the loan contract. Some lenders allow you to pay your loan off early, but others charge a penalty if you pay off the loan before the end of its official term.

For a full guide on how loans work, see our guide Loans Explained: all you need to know

How our cheap loans comparison service works

To use our loan comparison tool, simply put in the amount you want to borrow and the amount of time you need to repay it.

Then we show you a selection of different loans. The information we include shows the total amount you will repay, any fees you will have to pay, the interest rate and how much it will cost you each month. The APR gives you the total repayments over a year including fees, this makes it easier to compare different products.

When you find a loan that is suitable for you, just hit the Apply button. Don’t make lots of different applications in a short space of time as this will show up on your credit report and may discourage providers from lending to you.

Compare Personal Loans

How do I find a cheap personal loan?

The best way to find the cheapest personal loan for you is to shop around using an online comparison tool. You can look at the different loan deals on offer and see which offers the best repayment terms.

There are a few points to bear in mind:

• The amount of money you can borrow will be affected by your income and your credit record

• The cheapest loans are available to those who fit all the lender’s criteria, so the top deals do not go to everyone

• The APR you are offered may not be as good as the headline rate advertised

• There's no 'one size fits all' – the cheapest loans for you will depend on your personal circumstances

• The better your credit rating or credit score, the more likely you are to be offered the best APR 

What happens at the end of a loan?

At the end of the loan term, if you’ve stuck to your agreement you will have repaid the capital and all the interest owed. At this point, your loan agreement ends. 

It is really important to make your loan repayments on time and in full. If you miss payments, it will affect your credit score. If you had a secured loan, you could lose your home. With an unsecured loan, you could be faced with debt collectors or even bankruptcy. Making payments in full shows you can manage your money well and builds up your credit rating. This means you’ll get even better interest rates in the future.

Find out more about Credit reports and credit scoring with our guide to What affects credit rating.

Things to consider before choosing a loan

A loan is a big commitment, so when you are looking for the best loan deals, as well as the APR, there are several other things to think about:

• Can you afford the monthly repayments?

• Are your circumstances likely to change in the future in a way that could affect your repayments?

• Will this loan have a long-term impact on your credit history if you do not repay it in a timely fashion?

• Will the lender allow you to pay back your loan early if you want to?

• Is there an arrangement fee?

• Can you take a payment break or defer your loan payments if you need to?

Getting cheap loans online

Many of the cheapest UK loans aren't necessarily bank loans. Online providers have emerged as cheap competitors in the UK in the past 10 years. Make sure you consider specialist companies, or lenders such as, peer to peer loan companies.

However, make sure that your loan company is regulated by the Financial Conduct Authority (FCA). Peer to peer loans have been affected by the Covid-19 crisis and it is a good idea to read our guide on Peer to peer lending and how it works.

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