Compare low-interest personal loans

What’s considered a low-interest personal loan?

Market rates fluctuate, yet at the moment, an annual percentage rate (APR) below 10% for a loan would generally be deemed as a “low rate.” Essentially, this functions like any other personal loan, where you borrow money to cover expenses and repay it with 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 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 6%.

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. Some lenders, such as the AA, also reward existing members with an even lower rate.

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.

How does applying for a low-interest personal loan work?

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 causes 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 monthly until your loan is paid off.

Things to consider besides interest

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:

• Loan security. If you cannot provide any collateral, your options are limited to low-interest unsecured personal loans. By providing some kind of security, you can get a lower APR.
• Loan amount. Different lenders offer low-interest unsecured personal loans for amounts from £500 to £50,000. The maximum you can borrow depends on your creditworthiness, your existing financial situation and your ability to repay.
• Loan fees. A few online loans come with arrangement fees — typically between 1% and 5% of your loan amount — which is factored into your APR. There are other fees to look out for that don’t get included in your rate, such as prepayment penalties, late fees or fees for having insufficient funds. You could also consider a no-fee personal loan if you have very good credit.
• Loan term. Getting a loan term that matches your requirement may be easier than you think. You can normally find low-interest personal loans with terms from 2 to 7 years.
• Processing time. If you need money in a hurry, this aspect requires particular attention. Certain lenders can give you access to funds on the day you apply or by the next business day. For others, you may have to wait for as long as 7 to 10 business days.

Where can I find a low-interest personal loan?

In your search for low APR personal loans, you’ll come across these options:

• Peer-to-peer lenders. Peer-to-peer lending platforms that offer peer-to-peer personal loans connect investors with borrowers. With a good or excellent credit rating, you can get competitive interest rates.
• Credit unions. Credit unions don’t have any shareholders, so they transfer their profits to their members through competitive interest rates and little to no fees. Not all credit unions offer membership to the public at large.
• Secured loan providers. Some lenders allow you to secure your personal loan against an asset – usually property. In return, you could access a lower APR.
• Banks. If you have excellent credit, you might be able to qualify for a low-interest bank loan. You might even be eligible for a discount if you already have an account with them.

Consider these benefits and drawbacks before applying

Frequently asked questions

• What's a good interest rate on a personal loan?

  It really depends on your credit score. Competitive rates for borrowers with good to excellent credit can be as low as 6%.

• Can I get a low-interest loan with bad credit?

  Probably not. Most bad credit borrowers can only qualify for interest rates around 25% and up — if at all. If you have bad credit, you might want to consider getting a credit builder loan from a credit union, which typically comes with rates around 18%. These tend to be short-term and in small amounts and are designed to improve your credit score before you apply for other types of financing. Alternatively, you could consider applying with a guarantor.

• How quickly can I apply for a low-interest personal loan online?

  If you have all the required information close at hand, the process could take as little as 10 minutes.

• What information do I have to provide to apply for a low-interest personal loan?

  You’ll have to provide personal information such as your full name, date of birth and contact details. Lenders also require your employment and income-related details. It is often possible to verify your identity electronically.

Written by

Chris Lilly

Head of publishing

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Chris Lilly is Head of publishing 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. See full bio

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