There’s never been a better time to get a personal loan

With interest rates plunging and overpayments allowed without charge, personal loans have never looked so good.

2012 has been an incredibly competitive year in the personal loan market, with market leading rates falling by almost half a per cent since the turn of the year.

Back in January M&S Money took top spot in the best buy tables, cutting the typical APR on its loans of between £7,500 and £15,000 to 6%. But since then, competition has steadily forced the top rate down.

Indeed, today the very best rate you can get on a personal loan of this size is just 5.6%.

Let’s take a look at how the best buy tables have moved since January, with the example of a £10,000 loan repaid over five years.

The cheapest personal loans at the start of the year

Loan

Representative APR

Total amount repayable

Monthly repayments

M&S Money

6.0%

£11,555.50

£192.59

Tesco Bank

6.1%

£11,581.80

£193.03

HSBC (existing customers)

6.2%

£11,608.20

£193.47

Nationwide BS

6.4%

£11,661

£194.35

Sainsbury’s Bank (Nectar card holders)

6.4%

£11,661

£194.35

The cheapest personal loans today

Loan

Representative APR

Total amount repayable

Monthly repayments

Derbyshire BS

5.6%

£11,449.80

£190.83

Tesco Bank

5.7%

£11,476.20

£191.27

Sainsbury’s Bank

5.7%

£11,476.20

£191.27

Clydesdale Bank

5.8%

£11,502.60

£191.71

M&S Money

5.8%

£11,502.60

£191.71

So the five best buys today are ALL cheaper than the market-leading deal back in January, a pretty incredible development. It means that a £10,000 loan over five years will cost you more than £100 less than it would have at the start of the year.

Indeed, personal loan rates are now at their cheapest in five years.

It could cost you even less

A killer rate isn’t the only reason that personal loans are a more attractive prospect than they used to be.

There’s also the fact, thanks to a change in the law last year, you are now very unlikely to have to pay a charge if you manage to pay off the loan ahead of schedule.

It used to be the case that you’d have to shell out on extra fees and charges if you managed to get the cash in place to clear your debt before your final payment was due.

However, now the only time you will be charged is if all of the following apply:

  • You overpay more than £8,000 within a 12-month period.
  • There is something significant about the time you make the early repayment, perhaps that interest rates on new loans at the time are lower, so the lender will get less from re-lending the money.
  • The lender must be able to demonstrate the penalty is ‘fair and objectively justified’.

But will you be able to get one?

Not everyone gets the advertised rate

Of course, it’s the representative APR that gets all the attention, but it’s important to remember that not everyone will get this rate.

In fact, only 51% of applicants that are approved for a loan have to be offered that rate.

That means lenders can be a little choosy about who they give the representative rate to. And it’s applicants with the best credit records who are going to be most likely to get that rate.

Do you really need it?

But before you rush off to snap up a personal loan, make sure you work out whether you really need it. You should only borrow if the loan is absolutely necessary – even with these cracking rates, you’ll still shell out an extra £1,500 in interest on a £10,000 loan. Do you have savings you can use? Or can you afford to save up before making your purchase?

A personal loan is not something to go for on a whim.

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