11:48 23 May 2013
If you are looking for a mid-sized personal loan, you couldn't have chosen a better time as peer-to-peer lender Zopa has unveiled the cheapest personal loan rate ever! Here, we take a closer look at what you need to know about the deal.
What's the deal?
Zopa is a peer-to-peer lender, not a bank or building society. This means that the money will be lent to you by range of consumers using the Zopa website to get better returns than they would from a standard savings account. You can read more about this in Melanie Wright's article, Peer-to-peer: the phenomenon taking savers by storm. From your point of view however, it's just the same as borrowing through a traditional lender.
The all-time low annual percentage rate (APR) of 4.9% applies to borrowing of between £7,500 and £10,000, and to loans repaid between one and three years. Obviously, the shorter timeframe you choose, the less interest you will pay.
Who is it good for?
Anyone with a good credit score looking for a loan of between these amounts, and who is unfazed by making applications entirely online.
The first major hurdle is that, to benefit from this sub-5% rate, you'll need to act fast - it's only available untilWednesday, 22 May.
If you do find time to apply between now and then, bear in mind that, as with any other bank or building society, the rate you see advertised is only representative which, legally, means it only needs to be offered to 51% of successful applicants. So, depending on your credit score, you may not be offered the 4.9% rate you see - if you are offered a loan at all.
Bear in mind also that, as they need to protect the people who lend to you, peer-to-peer websites like Zopa can be quite strict when assessing borrowing applications.
Finally, if you were looking to keep your monthly loan repayments down, the maximum repayment term on this loan is three years but you can get up to five years elsewhere.
What's the verdict?
At sub-5%, the rate on the Zopa loan is not only the cheapest on the market, but the cheapest on record, which has to be good news. However, its lending competitors are trailing very close behind and, in some circumstances, could actually be the better option.
Derbyshire Building Society, for example, is offering a personal loan rate of 5% on the same minimum loan size of £7,500. But this rate applies to borrowing all the way up to £15,000 which is better for anyone looking to borrow more than £10,000. What's more, the Derbyshire allows you to spread the repayments up to five years - longer than the three offered by Zopa.
Sainsbury's Bank offers a similar deal at 5% on loans of £7,500 and £15,000 but on a maximum term of three years - and you will also need a Nectar card to apply.
As we have mentioned, in order to grab the best loan rates, you will need an excellent credit score - but if you make too many applications and are rejected, this score can be damaged further entering you into a downward spiral.
You can avoid this however by employing our loans Smart Search facility which will give you an idea of how likely it is you'll be accepted for a loan before you actually apply.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.
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