You are here: Home - Credit Cards & Loans - News -

Borrowing a little more money can save £1,000s in interest

Written by: Paloma Kubiak
If you’re looking to borrow money, taking out a few extra pounds could dramatically reduce the interest you’ll have to repay.

In some cases, borrowing just £100 more can result in a big drop in the interest rate charged meaning a reduction in the overall cost of the loan.

Banks aren’t allowed to tell borrowers about this ‘interest rate paradox’ as they can’t encourage people to increase their debt. While consumers should always borrow sensibly, research has uncovered the ‘sweet spots’ where the cost of borrowing can be much cheaper.

Analysis from Defaqto has revealed the ‘sweet spots’ are typically at around £3,000, £5,000 and £7,500:


As an example, borrowing £5,000 as opposed to £4,900 can mean big savings. A £4,900 loan from TSB with an APR of 23.6% across 48 monthly payments would cost £2,435.84 in interest, making a total repayment of £7,335.84.

However, if that same person were to increase their borrowing by just £100 to £5,000, TSB would charge an APR of 9.9% and the borrower would pay just £1,031.68 in interest, making a total repayment of £6,031.68. That’s £1,404.16 less interest than if they’d borrowed £4,900.

Looking at Lloyds Bank, a loan of £7,100 with an APR of 14.5% across 48 monthly payments would cost the borrower approximately the same as a loan of £8,500 with an APR of 3.9% – a total repayment of just over £9,180, giving a saving of £1,466.24 compared to if they’d borrowed £7,100.

For customers looking to borrow smaller amounts, a loan from Admiral of £2,900 with an APR of 29.9% across 48 monthly repayments would cost almost £25 a month more than a loan for £3,100 with an APR of 6.7%. The higher loan amount would have a total repayment of just over £3,528, giving a saving of £1,399.52 compared to those borrowing £2,900.

Rather than spending the extra money borrowed, consumers could use it to help pay off the capital of the loan and even repay it early if the terms of their loan agreement allow this. Therefore, not only has the extra money cost less, but the loan can also be paid off quicker.

Brian Brown, head of insight, banking & general insurance at Defaqto, said: “Consumers looking to make home repairs, buy new furnishings, update their car or perhaps take their family on holiday may be considering a personal loan to cover the cost.

“With so many loan options on the market, we would urge consumers to do their research and not jump hastily into opting for the first loan offered to them. Work out a budget to establish how much you’re able to repay monthly and then shop around to find the best annual percentage rate (APR) to work out how much interest you will be paying in total.”

There are 1 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Could you save money with a social broadband tariff?

Two-thirds of low-income households are unaware they could be saving on broadband, according to Uswitch.

How to help others and donate to food banks this winter

This winter is expected to be the most challenging yet for the food bank network as soaring costs push more pe...

Your rights for refunds if travel is affected by strikes

There have been a wave of strikes this year across many different industries, and more are planned over Christ...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week