Should you take advantage of cheap loan rates while they last?

23 November 2017

Many mortgage borrowers will have been disheartened to see banks and building societies start to increase their interest rates soon after the Bank of England raised the base rate.

However, other forms of borrowing have yet to react to the increased 0.5% base rate. The personal loans market remains highly competitive, with the major players maintaining impressively low rates. How long these rates last is yet to be seen, but consumers looking to take out a personal loan can still take advantage of some cheap deals.

There are many reasons consumers may want to take out a personal loan. You could be looking to do up the house, get a new car or consolidate existing debts.

While less flexible than credit cards, personal loans allow you to borrow and repay a set amount each month over a fixed period. The interest rate will depend on the size of the loan and how creditworthy you are in the eyes of lenders.

If you need to borrow a smaller sum, Moneywise’s Best Buy personal loan comes from Metro Bank, but you need to be an existing customer to take advantage. It charges 5.9% to borrowers looking to borrow £2,500 over a period of 24 months. This will require repayments of £110.69 a month, meaning borrowers will repay £2,657 in total. You can apply by telephone or in a Metro Bank branch, which are located across London and the South East of England.

If you’re not a Metro Bank customer, the next best deals come from peer-to-peer giants RateSetter and Zopa. Both providers charge 6.9% for a £2,500 loan over two years. Repayments are £111.82 a month, equivalent to £2,684 overall. Both loans are only available online.

For those looking to borrow bigger sums, the rates on offer are even lower. Data from Moneyfacts shows that the market average for a £15,000 loan over a five-year period is still lower than six months ago, despite the base rate rise.

It says the average loan of this kind had an interest rate of 4.5% in November 2017, compared to 4.6% in May. Our Moneywise Best Buys have even lower rates than that, with the top picks charging just 2.8% interest to borrowers.

Sainsbury’s Bank, TSB and Zopa offer loans of £15,000 over 60 months at 2.8%. This will cost £268.20 a month, with £16,092 total payable over the term. TSB borrowers can take out a loan in branch, online and over the phone, Sainsbury's Bank customers can apply online or by phone while Zopa is an online only.

Remember that advertised rates are just representative. This means lenders only have to offer this rate to 51% of successful applicants. People with a poor credit score might be offered a loan at a higher rate or rejected altogether.

Many providers in the personal loan market will only offer borrowers a loan rate quote after they have performed a ‘hard’ credit check. This means they use a credit reference agency, such as Callcredit, Equifax or Experian, to check your financial background before quoting you a rate.

Shopping around and getting multiple quotes could leave you with several marks on your credit fi le. Too many hard checks within a short period can be viewed negatively by lenders, meaning you could end up being quoted higher rates by simply looking for the best deal.

Experian and price comparison site GoCompare offer smart search tools that allow users to compare loans without being credit checked multiple times. Use these to help find the right deal.

FEATURED PRODUCT: Sainsbury’s Bank Nectar Purchase Credit Card 

For smaller purchases, a credit card with a long interest-free period could be better than a personal loan. Cards offer users more flexibility, but take care to keep your spending under control as it is easy to spend more than you expect when using plastic.

Moneywise’s ­Best Buy is the Sainsbury’s Bank Nectar Purchase Credit Card. It offers 31 months’ interest-free spending, although balance transfers incur a 3% fee. New customers opening an account before 28 December 2017 will also earn 1,000 bonus Nectar points – worth £5 – each time they spend £35 or more on Sainsbury’s shopping on the card. You can do this up to 10 times in the first two months after account opening, meaning a potential reward of £50.

Read more about loans on Moneywise

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