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Cheapest personal loan is now 5.6%

Personal loans have been getting steadily cheaper throughout 2012, and at 5.6%, the Derbyshire Building Society Personal Loan is now the UK’s cheapest personal loan since November 2006.

If you fancy borrowing at such a cheap rate, bear in mind that you’ll need to have a good credit rating to get this loan. You’ll also need to borrow a sum between £7,500 and £15,000 for between one and five years.

Sainsbury’s is also now offering personal loans at 5.6% to some customers. The terms for the Sainsbury’s Bank Standard Nectar Cardholder Loan are similar to the Derbyshire’s except that the maximum duration for a 5.6% loan is three years, not five. If you get a five-year loan from Sainsbury’s you’ll have to pay a slightly higher 5.7% rate.

Top personal loans for £10,000 over three years

Loan

Representative APR

Total amount repayable (TAR)

Monthly repayment

Derbyshire BS Personal Loan

5.6%

£10,864.08

£301.78

Sainsbury’s Bank Nectar Cardholder Loan

5.6%

£10,864.08

£301.78

Tesco Bank Personal Loan

5.7%

£10,879.56

£302.21

Clydesdale Bank Online Personal Loan

5.7%

£10,879.56

£302.21

M&S Personal Loan

5.8%

£10,895.04

£302.64

Barclays Existing Customer Barclayloan Plus

5.9%

£10,910.52

£303.07

first direct Existing Customer Personal Loan

6.1%

£10,941.48

£303.93

There’s no question these are great rates – it’s just a shame that only people with great credit ratings will be offered these cheap rates. Many folk will be completely rejected by lenders while some will be offered loans but at more expensive rates than in the above table.

Because the rates in the table are ‘representative APRs’ , lenders are only obliged to offer the above rates to 51% of successful applicants. That means that many applicants will end up on higher rates.



Alternatives

If your application for a personal loan is turned down, you could consider applying for a secured loan, also known as a ‘homeowner loan.’

There’s a decent chance you’ll get one of these loans – even if you’ve turned down for a personal loan – but the rate you pay will be higher than 5.6% and you’re also putting your home at risk. Personally, I’d only go for a secured loan if I was really desperate.

Another option is to remortgage or you could see if you were able to get a 0% deal on a credit card. Although, if you can’t get a personal loan, you probably won’t be able to get a 0% card either.

Just make sure you never go for a payday loan. The interest rates on these loans are horrendously high and can often suck people into a debt spiral.

The best alternative is not to borrow at all. Even if you get a table-topping personal loan, you’re still paying interest at 5.6%. If you borrow £10,000 for three years from Derbyshire, you’ll still end up losing £301.78. That’s money you’ll never see again. And all because you felt you had to have that holiday or new car right now.

If you can hold off from borrowing and instead save up cash, you’ll be richer in the long run.

But if you definitely want to borrow now, Derbyshire and Sainsbury’s are both attractive options.

Compare personal loans