If you’re looking to borrow a substantial sum – perhaps to help fund a new car or even to consolidate existing debts – a personal loan could be a good option.
Here are a few reasons why…
1. Competitive interest rates
Thanks to low interest rates, taking out a personal loan could be a lot cheaper than you think.
Sainsbury's Bank, for example, offers 2.8% APR representative on borrowing of between £7,500 and £15,000, so long as you repay this over one to three years. You'll also need to have a Nectar card to qualify.
If you don't have a Nectar card, or you want to borrow over four to five years, you'll pay 2.9% APR representative.
Sainsbury’s Bank and TSB are also offering a 2.8% APR representative rate on borrowing of between £15,001 and £19,999 taken over two to three years. Again, with Sainsbury's, this is so long as you have a Nectar card.
If your borrowing requirements aren’t quite so large – say you want to borrow between £5,000 and £7,499 - rates tend to be higher. This means if you’re borrowing towards the end of the loan bracket (£7,000, for example), it can sometimes work out cheaper to borrow more and qualify for a lower interest rate.
Hitachi Personal Finance has a rate of 3.4% APR representative on loans of between £5,000 and £7,499 repaid over three years.
2. Fixed monthly payments
Another advantage of personal loans is that they allow you to make fixed monthly payments, which means you know exactly how much you’re repaying each month.
Not only does this help you to budget, you can be reassured that once you’ve met all of these repayments, your loan will be paid off in full.
For example, if you borrowed £8,000 over three years with Sainsbury's Bank at 2.8% APR representative and an annual interest rate of 2.80% fixed, you’d pay £231.82 per month for 36 months. The total amount of interest you’d pay would be £345.56, making the total amount repayable £8,345.56. (Note this is a representative example.)
Personal loans also offer the flexibility of allowing you to choose how long you need to pay back what you owe. So if you’re borrowing a fairly large sum, you can choose to spread your repayments over a number of years, making it far more palatable.
What’s more, some providers, such as Sainsbury’s Bank, offer the option of a payment holiday of two months at the start of the agreement. Be aware though you will be charged interest between the start date of your loan and your first monthly payment.
What to watch out for
When comparing loans, there are a number of things to look out for before you sign on the dotted line. These include:
- A fee if you choose to pay off your loan early – often this is around two to three months’ interest.
- An arrangement fee for taking out the loan.
- You may receive a higher interest rate than the one advertised. This is because the APR is representative so only has to be offered to 51% of applicants.
Also be aware that if your credit score is poor, perhaps because you’ve defaulted on debts in the past or had a County Court Judgment (CCJ), lenders are more likely to turn you down.
It’s therefore a good idea to use our Smart Search tool which will give you an idea of how likely you are to be accepted for a loan before you apply, without leaving a mark on your credit report.
Simply click on ‘Find a loan’ on our comparison tables, enter details such as your name, income and how much you want to borrow, and you’ll then be able to view a list of loans along with how likely you are to be accepted for each.
All loans are subject to status and terms and conditions. Over 18s, UK residents only. Terms and conditions apply. See MoneySuperMarket.com for further information.
Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.