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How to find the right loan for you

As far as most financial products are concerned, it pays to shop around for the best deal. If your car insurance is coming up for renewal, for example, the chances are that your current provider won’t be offering as cheap a rate as you could get elsewhere. And with a savings account, it is worth checking your bank is still paying a market-leading rate of interest every few months or so.

But what about choosing the right personal loan? Is it really just a case of checking the best-buy tables and finding what looks like the lowest rate? In fact, getting the most suitable deal on a loan can be a bit more complicated than that.

What the best-buy tables really tell you

There’s no denying that best-buy tables are a useful guide to which lenders are offering the most competitive rates. But it’s important to understand exactly what information these tables are offering: usually, the rates given are for certain sizes of loan (£5,000, for example) over a specific time period, such as two or five years. If you want to borrow a different amount over a longer or shorter period, chances are you’ll face a different rate.

What’s more, the rate in the table is very likely to be a “representative” APR (annual percentage rate). This means that a majority of the lender’s customers will qualify for this rate, but many – particularly those with damaged credit histories – will have to pay more to borrow.

How to put yourself in the picture

To get a more accurate idea of how much you will actually be able to borrow and at what rate, your best bet is likely to be contacting the lender directly. Ideally, providers should be able to give you an informal guide to what deals are available based on your personal circumstances, such as your income, what other debts you have, your job and the reason you are looking for a loan. You can get this information for Zopa here. In this way you’ll be able to get a tailored quote rather than relying on the vaguer details given by best-buy tables.

You could of course make a formal application to each lender to see what deals are available, but such applications – whether you’re accepted or not – will be noted on your credit file and could create a negative impression for any lenders who subsequently check your file. Find out more about how credit scores work.

Early repayment fees

The rate isn’t the only factor you should take into account. It is worth checking whether there are any early repayment fees that could apply if you decide to clear your loan sooner than planned.

Could you get a better deal on your existing loans?

Getting a clear idea of how much you will be able to borrow and at what interest rate can also indicate whether you could be better off using a personal loan to pay off existing debts, thereby reducing your overall repayment costs.

Consolidating credit-card debts is a common reason for taking out a personal loan – but Zopa has just introduced a new service aimed at people who have taken out credit to buy a car.

Zopa Car ReFi

Zopa Car ReFi aims to help drivers pay off their existing vehicle finance deal with a lower-rate personal loan. Borrowers will be able to get a free instant estimate of how much they stand to save by switching – in fact, Zopa will only provide an estimate if it beats the customer’s existing agreement.

Under the Car ReFi scheme, loans will be available between £1,000 and £25,000 running for between one and five years, secured against vehicles no more than 10 years old.