Save, make, understand money

Credit Cards & Loans

Loan rates fall: The cheapest way to borrow

Paloma Kubiak
Written By:
Paloma Kubiak

The average cost of an unsecured personal loan has fallen year-on-year as demand for home improvements rise. Here are the cheapest ways to borrow £3,000.

Homeowners are looking to renovate their properties to gain extra space post-lockdown, meanwhile loan rates are falling, according to data site Moneyfacts.

It revealed a £3,000 loan over a three-year repayment period now has an average loan rate of 14.3%, down from 14.6% last year.

However, borrowers can avoid paying more than £600 in interest on an average £3,000 loan by choosing a fee-free 0% credit card instead.

The longest 0% balance transfer card will cost less than £100 on a debt of £3,000. Based on the longest fee-free 0% balance transfer card, paying £140 for 22 months will clear the debt before interest applies.

The table below shows the best deal on borrowing £3,000:

This table shows the top unsecured personal loan providers on a £3,000 loan taken out over three years:

Rachel Springall, finance expert at Moneyfacts, said a recent survey by Direct Line revealed half of homeowners are planning to renovate their homes, so they may opt for an unsecured personal loan to fund the cost.

However, it’s important for borrowers to note the rising costs of both labour and goods for any project, plus to review insurance policies once the works are complete.

Springall said: “Credit cards can be a practical alternative to a loan for funding the cost of home improvements, such as with a 0% introductory purchase deal or transferring the debt from an existing credit card to a 0% balance transfer offer, but it’s vital consumers pay back their debt before interest applies.

“Borrowers can avoid paying more than £600 in interest charges on an average loan at £3,000 (14.3%) by choosing a fee-free 0% balance transfer credit card instead if they can pay £140 over 22 months (NatWest). A credit card will also protect spenders under Section 75 of the Consumer Credit Act on purchases between £100 and £30,000 if a service or goods are not provided or damaged, and the card can be cancelled with ease if lost or stolen.

“Those homeowners searching for a larger property may not be able to afford to move due to rising house prices, so renovating an existing home could be a logical choice to improve their living space.

“Not only this, but homeowners could boost a property’s value, so if they do still wish to move, the aspiration could become a reality by boosting a property’s worth. If consumers are looking to apply for a loan, then it’s always worth reviewing a credit score before they do so, but also keep in mind that the advertised rate on a loan may not be offered to them.”