Travel

#Borrow at 3.4% for Ј7.5k+

By Martin Updated Daily

For those who need to borrow, a price war between providers means you can now get a loan for as little as 3.4% a year. But be careful before picking one as even the best deals have more tricks than Paul Daniels' sleeve.

In this guide

Credit cards can be cheaper than loans

Personal loans let you borrow up to Ј35,000. The key sell's "structured repayments", so you know how long you're borrowing for and what it'll cost each month. Yet in general, borrowing on the cheapest credit cards substantially undercuts the cheapest loans; meaning in many circumstances, they should be used first.

But much depends on why you're getting a loan, and how much you want to borrow. We've spelled out the most common situations, and where you might want to think about a credit card instead of a loan.

When a credit card's better than a loan

The most important factor here is your credit limit. Credit cards won't usually give you more than Ј5,000, and that's provided that you have a good credit score. So if what you need to buy is more expensive, you're probably better off looking for a Ј5,000+ loan.

But, if you can buy whatever it is for Ј5,000 or less, you have several other options. See if any of these scenarios fit you.

I can use a credit card to pay and can clear it in 27 months.

You can get up to 27 months 0% on a credit card, but this is only useful if you can budget to pay your debt off in that time, or you're organised enough to balance transfer the debt to another card before the 0% period ends.

This technique's also only useful if the retailer takes credit cards. And some - most notably car dealerships - often don't. But, there's still a way to use a card to beat a loan.

I can't pay directly on a credit card or I need longer than 27 months.

Don't worry, even if you can't pay the retailer directly on a credit card, you can still pay by card, it's just slightly more complex.

You'll need to get a specialist money transfer card. These work by transferring cash from your new card to your bank account, so you owe the card instead (though there's a fee to do this). Once there, you can spend it as you would a loan.

The longest deal at the moment is a card which gives you debt at 0% for 36 months (2.39% fee to transfer the money). But one card currently lets you do money transfer for a much smaller 1.69% fee, though this time you only get 32 months at 0%. So if you can pay the debt off in that time, or balance transfer it once the 0% is over, this could be a great replacement for getting a loan.

I'm trying to make existing debts cheaper.

In most cases, a loan won't be cheapest. Credit card balance transfer deals are designed to allow you to shift other cards' debts to them at a special cheap rate, usually much cheaper than the best loan rates.

This doesn't mean you need to keep shifting debts between short-term 0% deals. Some cheap deals (around 6.4% APR) last until ALL the debt is repaid - and beyond (see Best Balance Transfers guide). Though make sure you make at least similar repayments to what the loan would cost each month.

But a credit card's not always the best option.

Most credit cards won't give you a credit limit higher than Ј5,000, so if you want to borrow more, you might be better checking out the best buy loans below and using the Loans Eligibility Calculator. which tells you which loans you’ve the best chance of getting before you apply.

I'm trying to cut the cost of an existing loan.

Don't automatically assume switching to a cheaper interest rate will save you money. Many loans, especially older ones, have lock-in penalties. These mean even though you'll pay less interest, when you add in the fine for moving, you'll pay more overall. Our Cutting Existing Loan Costs guide has a calculator showing you if you'll gain by switching.

I think I can get a loan from my employer.

Some employers offer loans to employees, usually for buying travel season tickets so they can get to and from work. Provided the total value doesn't exceed Ј10,000, these loans can be made tax-free by employers, and paid back over the year from the employee's salary.

These loans don't have to be made for travel purposes, so see if your employer provides these loans - they'll be the cheapest you can get.

Choosing the right loan

Loans have never been as cheap as they are right now. A price war between competitive lenders means that rates have plummeted over the past couple of years.

But even the lowest interest rate loans can have hidden costs. Before you pick the type of loan, it's crucial to decide one thing.

How much, for how long?

The formula's simple. Borrow as little as possible, repay as quickly as possible. To avoid complications, always base your borrowing on what you can comfortably afford to repay (preferably after doing a budget ), as borrowing too much can cause debts to spiral out of control.

Beware - while borrowing over a longer period spreads the debts and decreases monthly repayments, it massively increases the interest you'll repay. Borrow Ј10,000 at 7% over three years and the interest cost is Ј1,100. Borrow the same over 10 years, and it's Ј3,900.

Beware 'representative' rates

All advertised loan and credit card APRs are 'representative'. This means only 51% of successful applicants have to get those rates. So, up to 49% may end up with a more expensive loan than they applied for (if they get accepted at all).

Sadly, the only real way to find out whether you'll get the advertised rate is to apply, though this leaves a search on your credit file, which can hit your ability to get credit in future.

Best Buys Personal loans

If you're looking for a loan, check out the best buy rates below. We list loans by 'bands' as the rate you could get differs depending on how much you want to borrow. Plus, if you want to find out which loans you'll get, without applying, use our eligibility calculator to see your chances.

The best buys are below, but there's the chance to undercut some of these rates by 0.5 percentage points if you're a Nationwide current account customer (or you successfully apply for one of their accounts). Read a full Nationwide how-to.