£10,000 over five years
If you’d like to borrow ten grand over five years, the best available rate is through a Nationwide Personal Loan, with a typical annual percentage rate of 7.7%. However, to qualify for this market-leading loan, you need to have a Nationwide FlexAccount, which is a fee-free current account, and use it as your main bank account.
That means that you’d pay £200.10 a month over the term, repaying a total of £12,006.
If you don’t fancy switching your current account, there’s the Sainsbury’s Personal Loan at 7.8% - meaning over five years you’d pay £200.54 a month and a total of £12,032.
You need a Nectar card to qualify for the Sainsbury’s loan, but that’s easily ordered online. If you take out this loan, you also qualify for double Nectar points on shopping and fuel for two years - which is a real perk for regular Sainsbury's customers.
Alternatively, Alliance & Leicester also has a personal loan with a typical APR of 7.8%, but only if you apply through moneysupermarket.com – the deal isn’t available in branch or on the A&L website.
Pay more to pay less
Of course, it’s worth mentioning that, if you can afford to pay just a small amount extra a month, you could cut the time you take to repay your loan – and the interest you pay.
For example, if you took the Nationwide Personal Loan over four years instead of five, you’d pay just £41.41 a month more but save £414 in interest.
£5,000 over five years
But what if you want to borrow a smaller amount, say £5,000, again over five years?
The best rate you’ll find for this level of borrowing is 8.8%, available from both Alliance & Leicester and Sainsbury’s. Again, there are some conditions – you’ll need to have a Nectar card to apply for the Sainsbury’s borrowing and you can only get the A&L rate through moneysupermarket.com.
At that rate, you’ll pay £102.50 a month over the five years, with a total repayment of £6,150.
The next best deal is 8.9%, which is being offered by both Tesco Finance and Santander. With that APR, you’d pay £102.72 a month over the five years, with a total repayment of £6,163.
However, to qualify for the Santander loan, you’ll need to be an existing customer of the bank.
Cut the term, cut the cost
Once again, paying a bit more each month can considerably reduce the term of the debt and the cost, so if you can afford to this is a good idea.
For example, if you took out the market-leading Sainsbury’s loan over three years instead of five, you’d pay £157.75 a month instead of £102.50 – but you’d save £471 in interest, not to mention getting clear of the debt much sooner.
Could a credit card be better?
One thing to consider is whether you need a small loan or if you’d be better off using a credit card.
The best way for you to borrow will depend on your situation. Generally speaking, you’ll pay a higher rate of interest on a credit card, but you’ll have more flexibility over repayments.
On top of that, if your credit score is good, you could qualify for an interest-free credit card deal – one that gives you as much as 12 months interest-free on purchases. For example, the Sainsbury’s Credit Card has a typical APR of 15.9% but gives you 12 months interest-free on purchases.
In fact, there are several cards offering a full year interest-fee. Barclaycard Platinum with Purchase, Tesco Clubcard Credit Card, the Virgin Credit Card, the MBNA Retail Rewards American Express and the MBNA Retail Platinum Visa all come with 12 months interest-free on purchases, with typical APRs ranging from 16.9% to 18.9%.
On top of that, under the Consumer Credit Act, you have greater protection when you use a credit card, because the provider is jointly liable with the retailer for any purchases worth between £100 and £30,000.
Borrowers who have enough financial discipline to repay their small-scale borrowing within one year will save a fortune in interest by using a credit card.
However, if it’s likely to take you longer than 12 months to repay the debt, or if you think you’d only make minimum payments, then it’s probably cheaper to go with a low-rate loan.
How’s your credit score?
This article has looked at the leading loans and best credit card deals, but not everyone will qualify for those. When a bank or credit card company is considering whether or not to lend to you, it will look at your credit file to see how well you’ve managed borrowing in the past.
It’s a good idea to get hold of your file before you start applying for a loan or card, that way you can see if you’re likely to qualify or not. Applications for credit leave a footprint on your file that can temporarily harm your credit score and make it harder to get credit elsewhere if you’re rejected.
You can compare credit report agencies and see your report through our site or, alternatively, you could use our ‘Find the right card for you’ service to see cards you have a good chance of being accepted for.