1-year fixed rate personal loans
Have your loan repaid within the shortest standard term by settling into a year of fixed repayments.
While personal loans are a serious commitment, they don’t necessarily have to be a long one. Whether you’re looking to buy a car, get married or even just make a few larger purchases, you can opt for a shorter fixed-rate term and have your loan repaid in 12 months. Use this guide to learn what to look out for when choosing a loan and to compare rates from popular lenders.
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How does a 1-year fixed-rate personal loan work?
When you take out a one-year fixed-rate personal loan, you’re promising to pay back the loan in monthly repayments over the course of a year. Each payment consists of the interest accrued so far, plus part of the original sum borrowed.
Because the interest rate is “fixed”, your monthly repayments will remain the same throughout the loan (the final instalment may be a few pence more or less than the others), and you’ll know in advance exactly how much the loan is going to cost you. So, provided you keep up to date with repayments, once the year is up, your debt will be paid off.
It takes around 15-20 minutes to apply online for a personal loan, and you can use the comparison tool above to get an idea of the current rates from some major lenders.
Once you’ve applied for a loan, the lender will come back to you (in some cases instantly, in other cases up to one working day later) with a loan offer or to decline your application. If you’ve received a loan offer and are happy with it, you can accept and funds will then normally be “drawn down” (transferred to your nominated account) a day or two later.
How should I compare 1-year personal loans?
Here are some of the key criteria you should use to compare loans:
- Loan amounts. First off, check that the lender offers the amount that you’re looking for. Loans of £1,000-£25,000 are the norm, but it’s not unusual for banks to lend up to £50,000 to existing customers. More than that, and you’re probably going to need some form of security (an asset such as a property to secure the loan against).
- Eligibility. Don’t apply for a personal loan until you’ve checked that you’re eligible. Each lender will have their own eligibility requirements. You’ll normally need to be a UK resident with a UK bank account, but lenders are likely to have additional requirements such as minimum annual income. Some lenders even go as far as stating what sort of credit score they’re looking for.
- Interest rates. Lenders will normally promote their product’s “Representative APR”, but what many people don’t realise is that lenders are only obliged to award this rate to 51% of those who take out the loan – the other 49% could be given a higher rate. Lenders will normally give you a more accurate quote, plus your likelihood of approval, when you give them a few more details about yourself, including your address, bank account details and salary. This process can involve a credit check, but should not affect your credit rating.
- Fees. While “set-up”, “arrangement” or “product” fees are rare, it’s crucial to check what fees the specific loan you’re considering incorporates.
- Early repayment. While lenders will not normally penalise you for paying back some or all of the loan early, that doesn’t necessarily mean that doing so will save you money in interest. You could be charged one or even two months interest to settle your loan early, so if early repayment is on the cards, or if you’d like to aim to overpay a little each month, check your product terms to see how much this would actually benefit you.
What are the eligibility requirements?
While eligibility requirements will vary by lender, most will typically require you to meet the following criteria:
- Be a UK resident aged 18 or over
- Hold a UK bank or building society account with a valid debit card
- Be able to provide three years of address history
- Be employed with a minimum annual income
- Have a good credit rating with no record of bankruptcy or CCJ’s in the last 6 years
One year is relatively short, in the world of personal loans, but circumstances can change. Once your loan has begun, there are a few ways that lenders may let you borrow more, or borrow for longer. These will invariably have implications for the overall cost of the loan.
- Repayment holidays. This is a period of time (normally a month or two) offered by some lenders, where you’re not required to make repayments your loan. This gives you some time to get back on your feet financially, but means you’ll pay more in interest overall. Should you choose to take a two-month repayment holiday at the start of your loan, for example, your loan will then last 14 months, and will cost you more in interest.
- Top ups. “Topping-up” is increasing the amount borrowed, midway through a loan. Some lenders allow it, subject to approval, and some don’t. Many lenders will require that you close your original loan account and begin a new, larger loan. In doing this you may lose your current rate and you may incur charges.
- Extensions. Most lenders will not allow you to extend your loan, but as above, may allow you to close your current loan and begin a new, longer loan. Again, this will be subject to approval, you may not keep your current rate, and you may incur charges.
- Multiple loans. Each lender will have their own policy on running two or more loans concurrently. For some lenders it will be a flat “no” – insisting that you close your original loan and begin a new loan. Again, this will be subject to approval, you may not keep your current rate and you may incur charges.
Can't I just take out a credit card?Potentially, yes. However the answer depends on what you’re buying, when you’re buying it and how you intend to pay the money back.
Personal loans come in a lump sum – you have a predetermined amount of time to pay them off. By contrast, credit cards are a revolving form of borrowing, so they can theoretically last a lifetime. You borrow what you need, when you need it (subject to a card’s monthly limit) and you have to make at least a minimum monthly payment on your balance. This can tempt borrowers into only paying the minimum and making additional purchases later on, resulting in indefinite debt. Credit card interest rates are generally variable, but cards often come with a promotional fixed-rate introductory period.
Using the wrong credit card could cost you more, because credit cards tend to have higher rates than personal loans. However, a card with a promotional rate of 0% on purchases could be a smart option, depending on your circumstances.
Finally consider any other fees (application, monthly or annual fees), any offers/rewards and the length of the application/approval process before settling on a credit card, personal loan or other form of credit. Don’t forget that you’ll pay a charge (typically 2-3%) each time you withdraw cash on a credit card.
1-year fixed-rate loan illustrations
Taking out a one-year personal loan is a significant responsibility and requires you to be able to plan and manage your finances carefully over the course of a year. Here are few examples of one-year loans at different interest rates to give you an idea of costs.
|Interest rate of 3.0% fixed p.a.||Interest rate of 5.0% fixed p.a.||Interest rate of 10.0% fixed p.a.|
Weighing up the pros and cons of a 1-year personal loan
Frequently asked questions about 1-year fixed rate personal loans
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