You’ll never balk a loan

Newcastle United owner Mike Ashley may be finding it harder to bear the pain of that late Croatian goal against England than most of us.

While Steve McClaren walks away with a cool £2.5 million, the Magpies boss is set to lose £68 million, with £100 million already wiped from the stock market value of his firm Sports Direct yesterday.

The Newcastle owner was set to sell more than one million England shirts through his Sportsworld chain had the Three Lions qualified, but such sales now seem about as likely as Steve McClaren being nominated in the New Yearís honours list.

However, ignoring the fact that Ashley probably has a decent financial reserve, he can take comfort from the fact that if he ever needed a loan to cover his losses, it might not (relatively) cost him all that much. For MoneyExpert.com research reveals that the larger the sum you borrow the less you pay for it. Here, we give you the low-down on the great loan paradox.

The bigger the better

It may seem strange but interest rates charged on large loans, typically those over £5,000 have traditionally been lower than those on more modest borrowing.

The average APR on a £1,000 loan is now 15.24 per cent, climbing from 14.63 per cent this time last year. However, if youíre thinking of taking a loan at this level youíd do far better to find a credit card offering a 0% deal. If you can make the repayments before the deal expires then youíre clearly onto a winner.

The average cost of a £2,500 loan is now around 9.7 per cent. Again, though, you might do better to find a good credit card deal, and ensure that you can make the repayments.

Given the amount of time it will take to clear the debt, however, it may be better in this case to find a life of balance card, charging you the same rate for the entire period of repayment. There are certainly life of balance cards available offering rates lower than 9.7 per cent. Click here to compare credit cards.

The average cost of £5,000 loans is even lower, at 9.4 per cent, and things can get cheaper the more you borrow. Take a look at average rates here:

Loan amount Average APR
£5,000 9.4%
£7,500 7.96%
£10,000 9.07%
£15,000 9.09%
£20,000 7.76%

Make sure you check where the best deals are. It could mean that borrowing £6,000 is more expensive than borrowing £7,500.

Making it add up

Itís all about risk. A greater percentage of people searching for loans under £5,000 have poor credit records and that means thereís a risk lenders wonít get their money back. MoneyExpert.com research earlier this year found that of those looking for loans of £5,000 or less, 60 per cent had poor credit records.

What to do?

Given the likely spending excess of the Christmas period, a loan to clean up your finances can be a good idea, and given that bigger loans offer lower rates of interest it obviously makes sense to consolidate your debt in one package. Given the number of deals available, however, it certainly pays to shop around to find the best on offer for you.

When shopping around for a loan, itís also important to know your limits. If your credit history isnít great and you get turned down, then it will be marked against you and the slope just gets slipperier.

MoneyExpert.com offers a free credit profiling service which helps people to understand their likely credit profile by answering straightforward questions about their credit history. MoneyExpert.com then recommends products from financial providers who lend to consumers with similar profiles, which lessens the likelihood of rejection.

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