How to get a cheaper rate on your loan

Chris Torney / 05 December 2016 ( 18 April 2017 )

How can you get the lowest possible rate when applying for a loan?



If you want to borrow money through a personal loan, the rate of interest you are charged is likely to be the key consideration.

Generally speaking, loans don’t come with initial set-up fees like the administration or legal charges added to mortgages – so the interest rate is pretty much the only factor in determining the best deal. So how can you get the lowest possible rate?

1. Be a safe bet

You’ll be offered a lower interest rate if you have a clean credit record: this means you have a history of making repayments on loans, mortgages and credit cards on time. 

Lenders will see you as a safe bet – and because lending to you is likely to be less risky, they can afford to set a lower rate.

Before you start applying, check your credit report through the three credit-reference agencies,  ExperianCallcredit and Equifax: each of them offers a basic copy of your report for £2.

How to check your credit report

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2. Shop around for the best rate

Don’t just accept the loan offered by your current bank or the first deal you come across online. Depending on your personal circumstances and the type of loan you’re after, you may find a big disparity in the rates on offer.

Many lenders now allow you to make an informal check of what rate you are likely to get: the advantage here is that it is quicker than making a full application, and it won’t be recorded on your credit file.

If you make a number of formal loan applications instead, they will be noted on your credit record which may create a negative impression for future lenders – it could look as if you are being repeatedly rejected.

Five things to do before a loan application

3. Change the size and length of your loan

The rate charged by a particular lender doesn’t depend only on an applicant’s credit history along with factors such as their income or age.

Typically, larger loans come with lower rates. So if you are borrowing less than £5,000 or £7,000, say, the annual rate of interest will probably be higher – quite a lot higher, in some cases – than on a loan of £10,000.

Of course, it is rarely a good idea to borrow much more than you need – but if you are planning to borrow between £5,000 and £7,000, try to find out whether you could pay less interest by going for a slightly bigger advance.

The length of the loan can also play a big part: some banks and building societies will charge less for longer-term loans, for example, but this is not always the case.

Sometimes, it can be cheaper to borrow over two or three years than over one or five: again, use the lender’s online calculator – if they have one – to see how changing the loan period could benefit you. 

But bear in mind also that if you borrow over a long period, while your monthly repayments might be lower, the total cost of interest will be greater.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.