Compare loans to find the best personal loan rates

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The UK personal loan market has become very competitive in recent times with lenders cutting rates in the battle for top spot. At the moment there are some very cheap loan deals on offer with rates of around 5% APR available.

As a consequence of the banking crisis and following economic recession, lenders had less of an appetite for risk and subsequently the average interest rate for an unsecured personal loan soared from 8.8% in 2007 to 12.9% in April 2010, despite the bank base rate falling to a historical low of 0.5%. However there are signs the market is warming up again with a number of providers slashing their rates in 2014.

Personal loans remain a better choice for borrowing for many people as they tend to incur much lower rates of interest than credit cards.

When it comes to borrowing with a personal loan the sensible borrower will shop around and explore all options before grabbing the cash.

You can use the money from a personal loan to spend as you wish. Many people use them to buy a car, a dream holiday, home improvements, or even to pay off credit card bills in one go, allowing you to spread the repayments over a longer time at a lower interest rate.

Generally you can borrow up to £15,000 with a unsecured personal loan, but with some products you can go as high as £25,000.

The repayment period depends on the lender. Some will let you borrow the money for as little as six months, although a year is more common. The maximum repayment period is usually seven years, but some firms will lend over ten years.

Unsecured personal loans are not tied into anything, but if you default on your repayments you could end up with a poor credit rating. A consequence of having a poor credit score is you will experience difficulty taking out new credit cards, a mortgage or even taking advantage of an interest free deal in the high street.

Interest rates do vary from lender to lender and when comparing deals the most important figure is the Annual Percentage Rate (APR) The APR is real cost, including fees and charges, as well as the actual interest, on a loan.

However some loan providers now offer risk-based APR pricing, with the best rates reserved for customers with an immaculate credit history.

When you apply for a personal loan, the lender runs your application through a credit rating agency. Using the information from the credit reference agency, the lender then gives you a credit score. Some lenders use this to assess your level of risk and offer an interest rate (APR) according to how good your credit rating is.

Interest rates are generally fixed for the length of the loan, which means you know exactly how much you will have to repay each month.

You don't have to go to a traditional bank or building society for a personal loan as some of the better deals are offered through supermarkets and other lenders, so shop around.