People who say the best things come in small packages donít know much about the current unsecured loans market.
MoneyExpert analysis shows that people borrowing up to £3,000 are likely to be paying almost double the interest rate of those taking out larger loans of above £7,000.
This is just part of a long-term trend with lenders offering the best rates to those willing to buy-in to a longer term deal for a greater value loan.
With many people looking to consolidate debts for repayment throughout 2010, MoneyExpert.com looks at the numbers and offers some top tips.
Paying more for less
As a rule, lenders across the market will charge higher APRs for low value loans. Currently, the average APR on a loan up to £3,000 is a very hefty 19.3% while on a loan between £7,000 and £10,000 it is just 10.3%.
And thereís little sign of things changing. Both Nationwide and Sainsburyís recently launched market leading rates ñ but you have to have borrow at least £7,500.
Even if you look at the best rates available for lower value loans youíll still be paying way above the average APR on a more sizable sum. The best rate currently available for a £3,000 loan is 14.7% offered by Alliance & Leicester. This is almost double the 7.6% offered by Nationwide for loans of £7,500.
Quite obviously those looking for a consolidation loan need to think carefully about the total value of their debts, and establish how much they can afford to borrow.
If youíre considering a low value loan, perhaps one of around £5,000 but have a £1,000 overdraft and a £1,000 debt on your credit card you could think about consolidating those debts into one single sum. That would qualify you for a better rate. If youíre paying interest on your overdraft the chances are the APR will be considerably higher than that which you could find from a non-secured loan.
Alternatively, if you have only limited debts but still need additional finance you could consider applying for a credit card. Whilst cards have traditionally offered good zero per cent deals on balance transfers, an increasing number are now doing the same with introductory purchase deals.
The All in One cards from the Halifax and the Bank of Scotland have a zero per cent deal lasting nine months, and Sainsburyís goes one better offering you 10 months to pay off new payments on the card without any interest whatsoever.
The lowest value loan
If a credit card isnít for you and you need quick cash to tide you over there is the option of a pay day loan. These loans differ from traditional borrowing in that you re-pay the amount borrowed within one month ñ effectively when your next pay cheque comes in ñ plus an additional set amount.
As the loan is designed to be re-paid quickly, the APRs, calculated to equate to the interest paid over a year, sound extortionate. If you make sure you meet the agreed terms, however, a pay-day loan can be an effective way of meeting other obligations that could otherwise see you paying much more in interest and charges.
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