Best personal loan rates

·7-min read
 (Unsplash)
(Unsplash)

If you are looking to borrow a sizeable sum to pay for home improvements, a car or wedding, say, a straightforward personal loan can be an attractive option.

Interest rates for loans for amounts between £7,500 and £15,000 are usually the lowest. Below £7,500, lenders need to charge a higher amount to make it worth their while. Above £15,000, they charge more because their potential losses are that much higher.

We’ve taken a look at loans in this borrowing range and identified the ones with the lowest rates which perform well against various other criteria.

Our personal loan star ratings are determined solely by our editorial team. For information, see our methodology section below.

1. cahoot - 5/5 stars

APR (representative) 3.10%

Early Repayment Charges* Yes

Late Payment Charge** £0

Our verdict

cahoot offers the lowest representative APR of 3.10% on loans up to £20,000. You can overpay on your cahoot loan at no extra cost, although the lender charges a fee for early repayment in full. There’s no charge for a missed payment either (although your credit score is likely to take a hit).

Pros

  • Top representative APR on open market

  • Quick approval process

Cons

  • Loan terms restricted to within 2 and 5 years

  • Late payment fee of £25

2. Tesco Bank - 4.5/5 stars

APR (representative) 3.20%

Early Repayment Charges* Yes

Late Payment Charge** £12

Our verdict

At a representative 3.20%, APRs on Tesco Bank loans are just a whisker off the best. And, while this lowest rate only applies to terms of between 12 and 60 months, it is possible to take a loan over terms up to seven years.

Pros

  • Repayment terms up to 7 years

  • Same rates apply to borrowing up to £20,000

Cons

  • £12 late payment fee

  • Extra eligibility criteria if loan is for refinancing

3. M&S Bank - 4/5 stars

APR (representative) 3.40%

Early Repayment Charges* Yes

Late Payment Charge** £0

Our verdict

At a representative APR of 3.40%, personal loans from M&S are up there with the best. The same rate applies from 12 months all the way up to seven years which offers a good dose of flexibility too.

You can overpay on your M&S loan free of charge but you will be charged a penalty to settle the full balance ahead of your selected term.

Pros

  • Same rate on terms up to 7 years

  • No fee for late payment (although your credit score will be affected)

Cons

  • £10,000 minimum income requirement

  • Cheaper APRs available

4. Santander - 4/5 stars

APR (representative) 3.40%

Early Repayment Charges* Yes

Late Payment Charge** £0

Our verdict

Santander’s representative APR of 3.40% on personal loans of between £7,500 and £15,000 is available to both new and existing customers looking to borrow for terms of between 12 months and 5 years.

There are no late payment charges on Santander loans should something go amiss, although your credit score may be affected.

Pros

  • Competitive representative APR

  • No fee for late payment (although your credit score will be affected)

Cons

  • £10,000 minimum income requirement

  • Cheaper APRs available

5. MBNA - 4/5 stars

APR (representative) 3.40%

Early Repayment Charges* Yes

Late Payment Charge** £25

Our verdict

At a representative 3.40%, loans from MBNA stack up well within the market. There’s up to 2 months’ payment holiday every year too, eligibility permitting.

Borrowing is available on terms up to 7 years, although the 3.40% rate is capped at a maximum of 5 years.

MBNA personal loans are provided exclusively by Lloyds Bank.

Pros

  • Competitive representative APR

  • Terms as long as 7 years (higher rate)

Cons

  • £25 late payment fee

  • Cheaper APRs available

*Based on a settlement figure as set out under the Consumer Credit (Early Settlement) Regulations 2004. This states that if you have less than 12 months remaining of your loan, providers can charge up to 28 days’ interest. An extra 30 days’ interest can be added on if there is more than one year of the loan term remaining, taking the total maximum penalty to 58 days’ interest.

** Late or missed loan payments will negatively affect your credit score

Methodology

When ranking the best lenders for borrowing in the £7,500 to £15,000 range we considered:

  • Interest rate: we looked at representative APRs - fixed for the duration of the loan

  • Term: the duration of the loan and the interest rate charged

  • Flexibility: the availability of an option to repay in full within the term without incurring a fee

  • Fees: fees for late or missed payments, if applicable

(Information correct as of 9 September 2022)

What is a personal loan?

A personal loan is another name for an unsecured loan. This means it’s borrowing that’s taken based on your income, personal circumstances and credit score. It’s not secured against an asset, like your house or car.

This means that borrowing limits on personal loans are usually lower.

How much interest is charged on a personal loan?

While APRs on personal loans have been climbing, the best deals still offer a relatively cheap way to borrow with costs for loans of between £7,500 and £15,000 starting at just over 3%. Loans for amounts higher or lower than this band usually cost more.

It’s important to note that you won’t always get the rate you see advertised. The regulations mean lenders only have to give the advertised rate to 51% of those who apply. That’s why it’s described as the ‘representative’ annual percentage rate (APR).

Can I get a loan with bad credit?

Lenders offer their best (lowest) rate to people with strong credit scores, so if yours isn’t as good as it might be, you’ll be offered a higher one, or possibly not offered a loan at all.

What is a soft search?

The best way to find out how you stand is to use an eligibility checker to see which deals you’re likely to be accepted for. This is also known as a ‘soft search’ and it doesn’t leave a trace behind on your credit profile.

How long can I take a loan for?

You can borrow over 12 months or over a number of years (usually up to 5 years, or sometimes 7). If you borrow for longer, the amount you pay each month will be lower, but the amount you pay back overall is likely to be higher.

How do loans work in practice?

If your application is approved, the money should be in your account within hours in many cases, and certainly within a couple of days. You’ll have to start making monthly repayments a month later.

It’s really important to make your payments in full and on time to avoid being hit by a late or missed payment fee. As well as the cost, missing a payment can also inflict damage on your credit score.

What should I do if I struggle to make my payments?

If you’re struggling to repay your loan, contact your lender in advance. It may offer you a one-month payment holiday if you have met all your previous payments.

If you have more serious financial problems which mean you cannot afford the debt repayments, again contact the lender to discuss the issue. It is much better to be open with than to ignore the problem.

It may be able to restructure the debt to give you longer to pay. You can also contact a charity such as National Debtline or Citizens Advice for guidance.

Can I repay the loan early?

If you find you are in a position to clear the debt ahead of schedule, that is your privilege, but the lender may charge an early repayment fee, which could amount to up to 58 days’ interest if your loan term has more than a year left to run.

Tips on how to borrow smart

Use an eligibility checker: You’ll have nothing to lose and it will keep your credit score protected should you be turned down for a personal loan

Shop around for the best rate: A comparison website will enable you to see APRs side-by-side. Remember that these are only representative, so you may be offered higher

Consider borrowing slightly more: In most cases representative APRs drop when you hit borrowing of £7,500. If you are in the market for a loan of this size it could make sense to borrow slightly more to access the better rate. However, ensure you play this to your advantage rather than borrowing more than you actually require

Look at alternatives: For example, a 0% purchase credit card which doesn’t charge interest at all. However, APRs are considerably higher on credit cards if you fail to repay what you owe within the interest-free period, so tread with caution.