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 sum of money that you borrow from a lender, such as a bank or credit company, and which you pay back over a set period of time.

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

How do I get the best personal loan?

The cheapest personal loans are those with the lowest interest rate and without any extra hidden charges. The best deals are available to people with a good credit rating. However, if you have had credit problems, you may still be able to get a loan, although the interest rate is likely to be higher.

If you have had problems with credit in the past, 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?

Broadly speaking there are three different types of loan you can apply for in the UK:

• Personal loans - unsecured loans, normally offered against your credit score. You can borrow small amounts up to £35,000 but the interest rates are sometimes tiered depending on how much you want to borrow

• Secured loans - loans which are typically secured against your home, these are more suitable for long-term loans in the UK, with payment terms of up to 25 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 would be at risk

• Car loans - car loans in the UK can be secured against your vehicle, or can simply be a form of unsecured personal loan

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.

In return for having the money upfront you pay the lender an interest rate, plus a portion of the capital you have borrowed at a monthly rate over the term of the loan. The faster you repay the capital you have borrowed, the less interest you will pay in total over the course of the loan. Loans usually have a set repayment amount and a fixed term, which you agree 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

Using our loan comparison tool you put in the amount you want to borrow, and then fill in the box to show 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 (known as the APR) and how much it will cost you each month. When you find one that is suitable for you, just hit the Apply button. Don’t make lots of different applications for a cheap loan in a short space of time as this will show up on your credit report and may discourage lenders 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 cheapest loan repayment terms.

There are a few points to bear in mind:

• Firstly, 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 low 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 be different from that offered to other applicants

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

What happens at the end of a loan?

At the end of the loan when you have repaid everything, your loan agreement ends. By the end of the loan term you will have repaid the full amount of the loan. 

It is really important to pay your loan repayments on time and to the right amount. That way, you can show you are able to manage your money well and you can build up a good credit report.

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

Cheap personal loans: Frequently asked questions

• What are the best loans? - the best loans are usually just the cheapest loans

• How to find the best loan rates for cheap loans - know how much you want to borrow, how long for, and shop around

• Which cheap loans are best for me? - Consider how much you can afford to repay each month, the quicker you repay the less you will pay, but the larger the monthly repayments will be

• Types of cheap loans - car-loans, personal/unsecured-loans and secured loans

• Getting cheap loans online - Many loan companies operate exclusively online, this helps them cut costs and provide

• Will my credit rating stop me from getting the cheapest personal loan? - your credit rating will determine your eligibility for the best unsecured loan rates

How do I get a cheap personal loan?

The cheapest loans are built around a set of criteria that will be different for everyone. Use our comparison tables to find a loan specialised to your needs, whilst considering low APR loans.

Where you want to find the cheapest personal loan, try to get your credit score in the best shape possible. This includes making sure you are on the electoral register, and that you do not apply for a lot of credit in a short period of time.

What are the best loans?

We explain how to find the cheapest loan for you with the lowest interest rate and explain what you need to know before choosing one.

Low price: As you can compare the cost of the loan upfront, loans compete almost exclusively on price alone, so the best loans are usually just the cheapest loans with the best loan rates.

Length of term: However, other things come into consideration to determine the best loans, such as, how flexible a lender is, if you can enjoy any repayment holidays, customer service, how long the term is and how long your application will take.

Comparing loans: You can shop around for the cheapest loan rates using our comparison tool. When you have found the best personal loan for you, you can apply to the lender. Be careful not to make lots of applications for credit – this will show up on your credit record and may make you look desperate for money.

Having lots of applications on record will reduce your chances of being approved for loans or other borrowings in the future as lenders will be more wary of you.

How to find the best loan rates for cheap loans

Our personal loans comparison service can help you find the best loan rates available to you. To find a cheap loan, we will need to know:

• how much you want to borrow

• how long you need to repay the loan

From this information, our comparison service will find the cheapest personal loans for you.

When you're looking at your results you will want to find the low interest loans, these are the low APR (annual percentage rate) loans, they have the lowest APR for the amount and repayment period you want.

The APR takes into account the cost of interest on the loan and any set up fees or charges. You should look at the APR and not just the headline interest rate. The APR gives a figure of the overall cost of the loan including any additional charges.

Which cheap loans are best for me?

A loan is a big commitment, so when you are looking for the best loan deals, as well as the APR, there are a number of 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 loans have emerged as cheap loan competitors in the UK in the past 10 years, meaning many of the UK's cheapest loans are to be found with online 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.

Will my credit rating stop me from getting the cheapest personal loan?

If you have had credit problems in the past, you may not be eligible for the cheapest loans as you will not meet the loan's requirements.

Often the best loan deals are given to people with the best credit ratings – as a result the rate you are offered may be higher than the advertised rate. Sometimes the lender will try to offer an alternative loan with a higher interest rate. This is a good reminder that having a good credit rating can be beneficial for years to come, so if your credit rating is in bad shape you may want to rectify that first.

The rate you’re offered will also vary depending on how much you borrow and how long you want to repay the loan over. Make sure you do another comparison to see if you can find your best cheap loan deal with another lender.

 How to improve your credit rating and credit score.

COVID-19 and cheap personal loans

The coronavirus pandemic has hit many people hard financially. You may have been affected by redundancy, a cut in pay or working hours, or the burden of having to look after other family members.

If you're having difficulty with your loans and debts, loan companies and other providers of personal loans should give you the option to freeze your repayments for three months while you get your finances back on track.

You do need to contact your loan provider if you're struggling to pay – don’t just stop the monthly instalments. This could get you into greater financial difficulty and will certainly adversely affect your credit rating score.

If you do have a payment holiday, it doesn't mean that the loan has stopped or that the interest rate has been reduced. You will still have to repay the full amount and could up paying more overall.

If you can, try to keep up with your monthly payments, and then try not to take on any more debt at the end of the loan period.

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