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How to get a low-interest loan

When you get a loan, you’ll be offered an interest rate. Typically, the lower your interest rate, the lower your monthly repayments will be. This could reduce the overall cost of your loan, making it an affordable way to borrow money. 

But how easy is it to get a low-interest loan? Here’s what you need to know.

When you get a loan, you’ll be offered an interest rate. Typically, the lower your interest rate, the lower your monthly repayments will be. This could reduce the overall cost of your loan, making it an affordable way to borrow money. 

But how easy is it to get a low-interest loan? Here’s what you need to know.

How is interest calculated on a loan?

Interest on a loan is calculated as a percentage of the amount you’re borrowing. You’ll need to pay this interest each month, on top of your repayments. 

The interest rate you’ll be offered depends on:

  • Your credit score
  • Your financial situation, including your income
  • How much you want to borrow
  • How long you want the loan to last (the loan term).

How much should I borrow to get a personal loan with a low interest rate?

It may seem strange, but the more you borrow, the lower the interest rate could be. 

Lenders often use a tiered interest rate system. This means they charge different rates based on how much you borrow. 

The table below is an example to illustrate how interest rates over one to five years could range, depending on the amount you borrow. 

Loan amount[1] Representative APR[1]
£1,000 - £2,999 15.3%
£3,000 - £4,999 14.3%
£5,000 - £7,499 7.9%
£7,500 - £25,000 6.4%
[1]The figures in this table are for illustrative purposes only. 

Remember the golden rule: borrow as little as possible, then pay it back as quickly as possible.

How long should I borrow for?

How long you should borrow for depends on how much interest you’re willing and able to pay overall. 

Repaying your loan over a shorter period will mean higher monthly repayments. However, you’ll pay less interest overall. 

Stretching your loan over a longer period will mean lower monthly repayments. But you’ll be paying interest for longer, so it will be more expensive overall. A long-term loan also increases the risk of missed payments, which could damage your credit score.  

The following table gives you an idea of how the term length can affect the total amount you’ll pay for your loan. 

Based on a £5,000 loan with 9% interest, ranging from one to five years[2]:

How loan terms affect the cost of a loan
Loan terms (years) Monthly repayment Total interest paid Total cost of loan
1 £436.44 £237.32 £5,237.32
2 £227.62 £462.85 £5, 462.85
3 £158.18 £694.57 £5,694.57
4 £123.59 £932.47 £5,932.47
5 £102.94 £1,176.49 £6,176.49
[2]The figures in this table are for illustrative purposes only.
Ideally, if you can manage larger monthly payments over a shorter term, your loan will be cheaper overall. But you need to balance this with what you can comfortably afford to pay back each month.

Loans calculator

Use our loans calculator to get an idea of how much you could afford to borrow and how much it will cost you.

How else can I get a low interest rate on a personal loan?

There are a few things that could help you get a low-interest rate on a personal loan:

Improve your credit score

The higher your credit score, the more access you’ll have to the best loans with low interest rates. Registering on the electoral roll and paying your bills on time are simple ways to boost your score.  

Find out how to build your credit score

Avoid too many applications

Every time you apply for credit, a hard credit check will be marked on your credit file. Too many applications in a short period of time can damage your score and lower your chances of getting a low-interest loan. 

Use our loan eligibility checker to see which loans you’re likely to be accepted for. It’s a soft search and won’t impact your credit file in any way. 

Research different loans

Research different types of loan to help you find the right one for your situation. For example: 

  • Debt consolidation loans – this type of loan allows you to move existing high interest debts to a single payment plan. Debt consolidation loans often have lower interest rates than other types of credit, but they’re typically repaid over a longer term.
  • Secured loans – securing your loan against an asset such as your home may get you a better interest rate. The downside is that you risk losing your home if you fail to keep up with the repayments. 

Shop around and compare loans

You might not qualify for the lowest interest loans on the market. But by comparing what’s available, you might be still able to find a low APR loan for your credit bracket. 

Consider other types of credit

If you’re looking to borrow a small amount of money, a 0% credit card could work out cheaper than a personal loan.

What alternatives are there to low APR loans?

Low APR loans can be a good option if your credit score is good. However, there are other low-interest alternatives to consider. 

  • 0% purchase credit cards – if you can manage to pay off the balance in full before the 0% introductory period ends, you won’t pay any interest at all.
  • 0% balance transfer credit cards – allows you to transfer your existing credit cards debts to a 0% interest card for a limited period.
  • 0% overdrafts – some lenders offer 0% or low-interest overdrafts. This could be handy for a short-term cash emergency. However, you’ll need to pay off the balance in full before the 0% period ends, or you may face hefty interest charges. 

Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.

Author image Sajni Shah

What our expert says...

“One of the best ways to get a personal loan with low interest is to build up your credit score before you apply. The higher your score, the more access you’ll have to low-APR loans.

When you start comparing loans, use our eligibility checker. This will give you an idea of what loans you’re likely to be accepted for, and what interest rates could be available to you."

- Sajni Shah, Consumer expert on utilities and money

Compare loans 

Once you’re confident that you’ll be able to borrow an amount within your financial means, you can compare loans quickly and easily with Compare the Market. 

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Frequently asked questions

Can you get interest-free loans?

No, you can’t technically get an interest-free loan. All personal loans, whether secured or unsecured, charge interest.

What does APR mean?

APR stands for Annual Percentage Rate. It refers to the total amount your loan will cost you over a year including interest and any applicable fees.

Will I get the advertised APR?

You won’t necessarily get the advertised APR. Unless it says ‘guaranteed’, it will be a representative APR. Lenders only have to offer the advertised rate to 51% of successful applicants – usually those with the best credit ratings.

The actual APR you’ll get depends on your personal circumstances and credit score.

How long does a loan application take?

An online personal loan application should only take a few minutes. Applying in branch or by phone could take longer.

If your application is approved, it could take between one and five days to receive your money, depending on the lender. In some cases, the money could be in your account within a few hours.

Can I still get a loan with bad credit?

It may be possible to get a loan with bad credit, but it’s unlikely you’ll get one with a low interest rate. Loans for people with a poor or no credit history tend to have high interest rates and tight restrictions.

Sajni Shah - Consumer expert on utilities and money

Sajni is passionate about building products, allowing Compare the Market to help you make great financial decisions. She keeps track of the latest trends and evolving markets to find new ways to help you save money.

Learn more about Sajni