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Please note: You should always refer to your loan agreement for exact repayment amounts as they may vary from our results.
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Market rates vary over time, but right now, a loan that comes with an annual percentage rate (APR) below 10% would broadly be considered a “low rate”. It works like any other personal loan: It’s money you borrow to cover an expense, which you pay back plus interest and fees. The main difference is that they tend to cost less than your average personal loan, thanks to the low interest rate.
Rates will vary depending on the loan amount and term you’re after — lenders can’t make as much profit as they might like from, say, a £2,000 loan over one year with an APR of 4%.
To qualify for a low-interest loan from most traditional lenders, you typically need to have a high credit score and a strong financial history.
Doesn’t sound like you? You still have low-interest options. Those with a less than perfect credit score might want to look at loans secured with collateral or borrow from credit unions or peer-to-peer lenders, which tend to offer lower rates than other direct lenders.
You might think that all you need to get that 3% APR is a reasonably good credit score, but the truth is that very few people can qualify for a lender’s absolute lowest rate.
Lenders only offer these low rates to ideal candidates: People who borrow over a certain amount, have a six-figure income and almost no debt. In other words, the kind of person that probably doesn’t need a loan. The average interest rate for people with excellent credit is actually just around 9%.
If you find a personal loan you’re eligible for, you can either apply online, in person or over the phone, depending on your lender. Many online lenders have pre-qualification options, which give you an estimate of what type of interest rates you might be eligible for without a hard credit check.
After you submit your application, an underwriter (or underwriting software) reviews your file and pulls a hard credit check — which will cause a temporary dip in your credit score. At this point you might be asked to submit additional documentation like bank statements, tax forms or pay stubs.
If you’re approved for a personal loan, the money is transferred into your bank account electronically. You then have to make repayments on a monthly basis until your loan is paid off.
Interest is important, but it’s not the only thing that makes a loan competitive. Compare these other features when looking for a personal loan:
In your search for low APR personal loans you’ll come across these options:
Chris Lilly is a publisher at finder.com. He's a specialist in personal finance, from day-to-day banking to investing to borrowing, and is passionate about helping UK consumers make informed decisions about their money. In his spare time Chris likes forcing his kids to exercise more.
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