Personal Finance

Best ways to borrow while rates are so low

In need of a bit of extra cash for a purchase or project? Whatever you have in mind there’s a way to fund it. Low interest rates may be bad news for savers but it means borrowing is incredibly cheap at the moment. Here’s a rundown of the best ways to borrow cash, depending on how much you need.

Borrowing big bucks

If you need to borrow £7,500 to £15,000 then the high street banks are the best place to start. “Banks are keen for your business and are offering some very tempting personal loans at the moment,” says Andrew Hagger in  The Independent. Tesco and Clydesdale banks are both offering personal loan rates of 3.4 per cent APR. That is close to a record low– the lowest ever offered was 3.3 per cent APR.

Lowest rates for smaller amounts

You may not need that much though. For loans of less than £7,500 the high street banks are best avoided as their interest rates shoot up for smaller sums. For loans of £2,000 to £7,500 the lowest rates are offered by peer-to-peer lenders.

While putting your savings into peer-to-peer to be lent to others carries more risk as it isn’t regulated in the same way as the high street banks, the same can’t be said for borrowing from them.

“For borrowers there is no such stark distinction between peer-to-peer and traditional bank loans, so they can afford to make their decision purely on the interest rates offered,” says Tara Evans in The Telegraph.

At present those interest rates are very attractive. On average you’ll pay over 12 per cent APR to borrow £3,000 from a high street bank, but peer-to-peer lender Ratesetter would charge you just 5.2 per cent APR interest over three years or Zopa would levy 5.3 per cent APR interest.

Interest-free borrowing for small amounts

Anyone looking to borrow less than £2,000 should take a look at the war currently going on between credit card providers. Interest-free deals have got silly in recent months. You can now take advantage of zero per cent deals that last for more than three years in some cases.

However, there are things you need to watch out for here. Firstly, how do you need to spend the money? If you can put things on a credit card then Post Office Money offers zero per cent on purchases for 27 months. Just make sure you can afford to pay off the debt within the interest-free period as the interest rate rockets to 18.9 per cent APR afterwards.

If you need to be able to pay for things with cash you can still use a zero per cent credit card deal. You just need to get a money transfer card. These credit cards allow you to move money into your current account and then pay off the debt interest-free.

Virgin Money offers a money transfer credit card interest free for 32 months with a 1.69 per cent money transfer fee. Again though, make sure you pay off the debt before the 32 months are up otherwise the interest rate soars to a hefty 20.9 per cent APR.

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