Compare 5-year fixed-rate personal loans
A 5-year fixed-rate personal loan could help you spread the cost of a large expenditure – breaking it down into manageable monthly payments.
Whether you’re planning to borrow money for home improvements or to help pay for something big like a wedding, a five-year fixed-rate personal loan offers you the benefit of repayments that stay the same no matter what happens in the market — making budgeting a little less stressful.
Compare personal loans
How does a 5-year fixed-rate personal loan work?
It takes around 15-20 minutes to apply online for a personal loan. Most lenders have a calculator on their website which gives borrowers an estimate of the monthly repayment amount and the overall cost of the loan. This calculation is based on the product’s “Representative APR”, but what some 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 can give you a more accurate quote along with 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.
If you’re happy with the rate you’re offered, and the quoted monthly repayment and overall cost figures, you can accept the lender’s offer and funds will normally be “drawn down” (transferred to your nominated account) a day or two later.
When you take out a five-year fixed-rate personal loan, you’re agreeing to pay back your loan in regular repayments over 60 months. Because the interest rate is “fixed”, your monthly repayments will remain at the same amount (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 long as you keep up to date with repayments, when the five years are up, your debt will be cleared.
Key features of a 5-year fixed-rate personal loan
- Borrow £1,000-£25,000.
Each lender will have their own minimum/maximum amounts, which may vary according to the length of loan. The amount you’re able to borrow will also be subject to credit and affordability checks. Some lenders let existing customers borrow up to £50,000. Again, this is subject to approval.
- Fixed monthly repayments.
Signing up to a fixed-rate loan means you’ll know in advance exactly how much your loan is going to cost you, and your monthly repayments will remain the same.
A “secured” loan uses an asset (normally a property, land or a vehicle) as collateral. Fixed-rate personal loans are normally unsecured, so they represent a higher level of risk to a lender, and this is normally reflected in the rate. If you’re thinking of borrowing a larger amount, and you own a property, you may wish to consider remortgaging as an option, as you may pay a lower rate to borrow the funds, however don’t forget to take into account the term of the loan. A fractionally better interest rate, but paying off the debt over 30 years rather than 5, would be make the overall cost much higher.
- Quick, personalised quotes.
With just a few details about your circumstances, lenders can normally give you an instant personalised quote, telling you if you’re likely to be approved and giving a more accurate estimate of the interest rate you’d be charged, the monthly repayment amount and the total cost of the loan. This should not affect your credit rating.
- Simple application.
No more waiting around at the bank or on the phone on hold – it’s possible to complete your entire application online from the comfort of your own home, in around 15-20 minutes (less if you don’t shop around, and simply opt for your current bank).
- Access funds in 1-3 days.
Once approved, lenders are able to have your loan in your account within a day or two. Generally speaking, taking a loan from your existing bank will make this process quicker, but as you’d expect, it generally pays to shop around.
- Late repayment charges. If you miss a repayment you’ll incur a late payment fee, and will damage your credit record (making it harder to secure credit in future).
- Early repayments.
It’s normally possible to pay some or all of your loan off early at any point, but some lenders make this process easier than others. While almost all lenders state that there is no penalty for early repayment, that doesn’t mean that doing so will save on interest. If you’re going to aim to clear your loan early, which is very sensible, then check the terms to see if early repayment will actually save you money. A common policy amongst major banks is to charge two months’ additional interest on any sums paid early.
It’s also worth noting that while “set-up”, “product” or “administration” fees are very rare these days for personal loans, you should still check whether or not the product you are considering comes with a fee.
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.
Using the wrong credit card could cost you more, because credit cards tend to have higher rates than personal loans. Credit card interest rates are generally variable, but like many mortgages, some credit cards come with a promotional rate of 0% on purchases for an introductory period. This introductory period is typically 6-32 months, after which a considerably higher rate kicks in. When considering a 5 year term, this means that you would need to switch to a new credit card at least once during the five years to ensure your interest rate was as low as possible.
Don’t forget to consider any other fees (application, cash advance, 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.
5-year fixed-rate loan illustrations
Taking out a five-year personal loan is significant responsibility and requires you to be able to plan and manage your finances carefully. Before committing to your loan, make sure you are confident you’ll be able to meet all of the repayments. Here are few example loan amounts with different interest rates to give you an idea of what each your monthly payments could cost.
|Interest rate of 3.0% fixed p.a.||Interest rate of 5.0% fixed p.a.||Interest rate of 10.0% fixed p.a.|
Benefits and drawbacks of a 5-year personal loan
What are the eligibility requirements?
Eligibility requirements will vary by lender, and you should always check this before you apply. Lenders will typically require you to meet the following criteria in order to be considered:
- UK resident
- Aged 18 or over
- Hold a UK bank or building society account with a valid debit card
- Able to provide two 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
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 financial “breathing room”, but means you’ll pay more in interest overall. If you take a two-month repayment holiday, for example, your loan will then last five years and two moths, 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. You may not keep 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.
Frequently asked questions about 5-year fixed rate personal loans
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