How to get the best APR on a personal loan

1. Consider the amount you want to borrow

If you’re wondering how to get the best APR on a personal loan, you first need to consider the amount you want to borrow. Deciding this will allow you to compare different rates more accurately than if you look at loans for different amounts.

Generally speaking the larger the amount you want to borrow, the lower the APR. However, you shouldn’t just borrow more for the sake of a lower interest rate. If you borrow more than you can afford to pay back, you risk missing payments and being charged late fees.

Your credit score will also be damaged, causing you to miss out on the best interest rates when you apply for credit in the future.

2. Look at the duration of the loan

The duration of the loan also affects how much interest you pay. This is because your APR is calculated in such a way that you pay the same amount each month. Paying your loan back over a shorter period of time means that you pay less interest overall.

It’s important to note that agreeing to pay a large amount back over a short period of time can be stressful. If your monthly repayments are higher than you can afford to pay, you may miss payments. This will damage your credit score and you may incur late fees.

Essentially you should calculate how long you can afford to pay the loan back for and then shop around for the best deal that suits your needs.

The golden rule of taking out credit is to borrow as little as you can for as short amount a time as you can. Don’t be seduced by a low APR. 

 3. Take your time and shop around

Once you know how much you want to borrow and how long for, you can shop around for the best deal. Use comparison websites or brokers like Ocean to find out what APR you are eligible for. This allows you to narrow down your choice to a shortlist of several companies. Remember to also check loan providers who may not be on comparison websites directly, so you don’t miss out on a deal that suits your financial circumstances.

Where you see a ‘representative APR’ advertised, this means 51% or more of customers receive this rate or better. 

You can only find out which rate you’re likely to be offered by either applying directly or using an eligibility checker.

4. Don’t apply for multiple loans at the same time

Applying for multiple loans at the same time will harm your credit score because each application leaves a footprint on your credit report. You can find out whether you’ll be accepted for a loan you’re interested in and exactly what interest rate you’ll be offered by using an eligibility checker. This tool runs a soft search on your credit history without leaving a mark for others lenders to see.

This way you can decide which loan you want to apply for before making an application, minimising the damage to your credit score.

5. Look after your credit rating

Having a high credit score will maximise your chances for being offered the most competitive interest rates. If you look after your credit rating, you’re more likely to get a low APR when you apply for a loan. Here are four top ways you can improve your credit score:

• make sure your credit report is accurate by closing any unused accounts and keeping your address updated on the electoral register
• have your bills in your name and pay them on time and in full
• avoid making multiple credit applications in a short space of time
• keep your credit utilisation ratio low – ideally under 30% (in other words, spend less than 30% of your total available credit limits across all of your overdrafts and credit cards)

Is a personal loan the right option for me?

Whether or not a personal loan is the right option for you depends on how much you’re looking to borrow, how long you need to pay it back and what you want to use it for.

• if you want to borrow under £5,000 a credit card might be a better option for you. Personal loans typically allow you to borrow more. It’s possible you could get a better APR on a credit card than a personal loan if you want to borrow a smaller amount, so this option may be worth considering
• if you want to use your loan for business purposes you might be better off getting a business loan instead. Many financial providers won’t let you use a personal loan for business purposes, plus you miss out on extra perks like financial support and business advice. Consider both options to be sure you’re making the right decision for you
• if you want to use your loan to put down a mortgage deposit, you may want to research the implications of this. Many mortgage lenders won’t let you use a loan for a property deposit because they believe that you won’t be able to make repayments on both your mortgage and your loan. It’s important that you only take out a loan if it’s the best financial decision for you, so make sure you do thorough research