Cheap Loans

Reputable firms generally charge penalties of no more than a few months' interest if you pay off the Cheap loan early. This is important, you never know when you may want to pay it back swiftly.

Similarly, avoid expensive payment protection insurance, which has a legacy of being mis-sold and not paying out. It may benefit you, but make sure you read our a guide to PPI first and remember getting this insurance from your loan provider is rarely the cheapest option.

Also consider your mortgage lender. They may offer you a better rate although borrowing will be secured on your home. Similarly, if you are thinking of buying a new car or approved dealer second hand car, check out their finance offers - these can be very good but remember to check the small print

What rate will I get?

Your credit score is critical - you can find this out from experian or equifax.

You should passionately protect your credit score and do everything you can to improve it. 

The loan rates that lenders scream about in adverts are not necessarily the ones you will be offered. Lenders must offer 66% of successful applicants the advertised rate, others with not so good credit histories, more unstable employment or lower pay may get a worse rate.

Shopping around for personal loans can deliver a big difference in rates. Never just take the loan your bank offers you.

What about preferential rates for existing customers?

That's definitely a point worth raising. It's a fast-growing trend - banks are keen to get you as a current account customer so they can then cross-sell you lots of other products. So more and more are offering great loan rates - but only to their current account holders. For instance, Nationwide building society has today launched a new personal loan rate of 7.6% for loans of between £7,500 and £14,999 for up to five years for its main FlexAccount customers.

This can get complicated as you need to make a call on whether it's worth switching bank accounts to get access to the great loan rate. And, of course, you can't apply for the loan until you've opened the current account - so you won't even know whether they'll let you have it.

And finally, do you really need a loan?

This is the most important question. You may have already sanity-checked your need to borrow more - but it's always worth doing again. Take a debt test to give you a feel for whether you're coping with what you already owe. See if there's areas of spending you can trim to balance the books. If the loan is to buy something - a car, holiday, etc - think hard about whether it would be better to put it off until you've saved more to put towards it. 

What are the best loan rates?

Our table below is a great guide to the best loan rates. But you should do a full comparison which will help filter out the deals you won't have access to.

On smaller cheap loans, less than £5,000, the rates aren't so good. On loans of £1,000 to £1,999 the best you can expect is 15.8%. On £2,000 to £4,999, the Post Office offers 13.9%.

A final option is a new type of online borrowing where websites cut out the middleman - the banks. They put consumers wanting to save in touch with consumers wanting to borrow, but in large batchs. So if you deposited, say £5,000, it may be lent to 50 different people. The pioneer in the field is Zopa. It only allows those with a good credit score and loan rates vary daily and are determined by the amount needed and length of borrowing. It also depends on how good your credit score is. The best rate is currently 9.6% on £4,000.