Small loan borrowers getting a raw deal


The difference between the best and worst deals on a £3,000 personal loan over three years is £851, and an eye-watering £1,481 over five years, according to new research.

Number crunching by Andrew Hagger of has revealed that while interest rates are at record lows for those seeking to borrow £7,500 or more, those who want to borrow less are getting a raw deal by comparison.

"The established big banking names may be busy pulling out all the stops to win new custom in the current account war, but when it comes to lower-value personal loans they're seemingly not interested and extremely uncompetitive," said Hagger.

He said that while there are currently five lenders offering loans of £7,500 or more at 5% APR or below, for smaller amounts the majority of lenders are charging well into double figures – and in some cases almost 25% APR.

Hagger's research found that some cheaper options are available, but not from the big high street banks. Instead, for borrowers looking for loans of up to £3,000, he recommends MBNA and peer-to-peer lenders Zopa and Ratesetter.

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While the MBNA Rate for Life isn't strictly a personal loan, he says there's nothing to stop you using this 'fixed rate for life' credit card in the same way by setting up a direct debit to ensure your monthly payment is made on time every month. Any purchases made in the first 90 days are charged at an interest rate of 6.9% APR for as long as it takes you to clear the balance.

"Peer-to-peer lenders Zopa and RateSetter both offer sub-10% rates and can also save you a small fortune in interest costs when compared with some of the big banks," he adds.

£3,000 borrowed over a term of five years

MBNA Rate for Life 6.9% £59.00 £3539.00
Zopa 8.3% £60.83 £3649.80
Ratesetter 9.0% £61.76 £3705.60
Sainsbury's Bank 12.7% £66.76 £4005.60
Tesco Bank 12.8% £66.89 £4013.00
Santander 14.9% £69.76 £4185.60
M&S Bank 16.9% £72.50 £4350.00
HSBC 18.9% £75.26 £4515.84
Natwest 19.9% £76.67 £4600.20
Barclays 19.9% £76.83 £4609.58
Halifax 24.9% £83.68 £5020.80

Data researched by from provider websites 23 September 2013

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