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What are personal loan interest rates?
A loan interest rate is the amount a lender charges a borrower, often monthly.
It’s a percentage of the amount borrowed and is calculated against the current value of your loan.
Fixed vs. variable loan interest rates
Loans usually have either a fixed or variable interest rate. With a fixed rate, the interest stays the same throughout your loan term. This means you’ll always pay the same rate of interest regardless of your loan amount,
With a variable rate, the interest rate fluctuates. This will usually change depending on your lender or the Bank of England’s (BoE) base rate. Because of this, your monthly payments can either increase or decrease.
What factors affect loan interest rates?
- Credit score: Typically, the higher your credit score, the more likely you are to be accepted for a loan with a better rate. Find out how to improve your credit score with our guide.
- Loan value: How much your loan costs can also affect the rate you’re offered.
- Loan length: Often, the shorter your loan term, the higher your monthly interest payments are. Longer loan terms often have cheaper monthly payments, but can work out more expensive overall.
- Loan type: Different loan types have different interest rates. So, it’s always best to do your research before making your decision.
- Base rates and economic conditions: Your loan rate will differ depending on your bank’s base rate. This, itself, will be influenced by the Bank of England’s base rate. Learn more about how the Bank of England base rate affects your loan.
- Type of lender: Your loan rate will differ depending on the lender you choose. Banks, Building Societies and private lenders often charge different interest rates.
- Fixed vs variable rate: Fixed rate loans offer a fixed interest rate, which won’t change throughout your loan term. Variable loan rates often fluctuate in-line with changing base rates.
What is APR?
APR stands for Annual Percentage Rate. Lenders use it to show the total cost of your loan including interest and any additional charges.
Representative APR is an advertised rate allowing you to compare borrowing costs between different lenders. Loans advertised as representative APR means at least 51% of customers will be at least offered this rate. However, it's not guaranteed, and the rate you are offered won’t necessarily be the same.
How to get a lower interest rate on your personal loan
The interest rate you’re offered on your personal loan will depend on a few different aspects. In some instances, there could be a way to change these factors so you get a better loan rate.
- Improving your credit score - If you have a higher credit score, you’re more likely to be offered a better interest rate.
- Comparing loan offers and types - Loan rates will differ depending on the lender and type you choose. Don’t be afraid to shop around or ask for advice before making your decision.
- Changing your loan value and terms - Personal loan rates will change depending on how much you want to borrow – and how long for. Use a loan calculator to work out what could be the best deal for you.
To apply for borrowing, you must be 18+ and living in the UK. Subject to lending criteria.