In fact, if you want a loan of £7,500 or more, the interest rates being offered are at a two-and-a-half-year low.
Only this week, Sainsbury’s upped the ante by offering an annual percentage rate (APR) of 6.8% to those looking to borrow between £7,500 and £14,999 over one to three years. Loans repaid over a longer period will be charged a slightly higher APR of 6.9%.
Marks & Spencer Money has also recently slashed its loan rates, and is also offering an APR of 6.9% on loans between £7,500 and £14,999.
Could it cost less to borrow MORE?
It’s worth taking the time to see if you could borrow more – and pay less for the privilege.
For example, Marks & Spencer is offering a representative APR of just 6.9% for anyone looking to borrow £7,500 over five years.
That means you’d pay £147.42 a month, making the total amount repaid over five years £8,845.
But, if you apply to borrow just £7,000 through M&S, the representative APR is 12.9%. That means you’d pay £156.40 a month – so £9,384 in total.
That’s an astonishing £539 more than if you’d borrowed an extra £500!
So, the message is clear – the best rates are on loans of £7,500 and up. If you’re near that threshold, try bumping up the figure to see if you can actually pay less.
Where are the cheapest loans?
Sainsbury’s loan is the current market leader at 6.8% on loans between £7,500 and £14,999, provided you repay the debt between one and three years. If you need longer, then you will be charged 6.9%.
You need a Nectar card in order to qualify for that rate but it’s easy to pick one up either at a Sainsbury’s store or online.
It’s worth noting too that the supermarket pays loan customers double Nectar points on Sainsbury’s shopping and fuel for two years.
For regular Sainsbury’s shoppers, that can be the equivalent of a week’s free shopping.
Marks and Spencer is also offering a representative APR of 6.9% on loans between £7,500 and £14,999, while the next best available deal is from Alliance & Leicester, with a representative APR of 7.1%. That means a total repayment of £8,885 if you borrowed £7,500 over five years. That rate isn’t available if you apply directly to the lender, so make sure you apply through a price comparison site.
It might seem unfair, but being turned down for borrowing because your credit score isn’t high enough can actually damage your credit score. Watch our video ‘Don’t risk credit rejection’ to find out more.
That means it’s worth getting hold of your credit file before you apply, so you can see how you appear to borrowers and make a decision about whether or not to apply for the most competitive loans.
Another good option is to apply for a loan that will only carry out a soft search on your credit file until it’s made you an offer in principal.
For example, Nationwide will give customers a quote without leaving a footprint on their file. That means you can see if you’ll qualify for the representative APR of 7.3% without limiting your chances of successfully applying elsewhere. At that rate, you’d repay £8,924 in total over five years if you borrowed £7,500 at the outset.
Consolidating to cut costs
Now that rates are starting to fall, many borrowers will be considering consolidating current debt onto a cheaper rate. This can be a particularly good idea if you have expensive credit card debt as well.
However, you may prefer to shift any credit card balance onto a card that offers new customers an interest-free introductory period. For example, the market-leading offer is the Barclaycard Platinum Balance Transfer card, which gives new customers 18 months at 0% on any balance transfers, for a 2.9% fee.
After that, they pay a representative APR of 16.9%, but if you can clear it within the set period, it’s a better option than a loan.
Having said that, the danger of relying on a credit card is that you can’t request a specific credit limit, as you can with a loan. So, there is a risk that you will apply for a card in order to transfer your balance but not be given enough credit to actually move all your debt across.
Again, taking a realistic look at your credit score and earnings can help you work out how likely a lender is to offer a generous limit.
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.
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