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Top deals improve for borrowers with small debts

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Rachel Springall, Press Officer
Rachel Springall, Press Officer / Finance Expert T: 01603 476210 E: Email Rachel
11/01/2022

Top deals improve for borrowers with small debts

Starting a new year with a fresh start surrounding debt or even borrowing a small sum to make home improvements may be in the mindset of consumers. Thankfully for those considering a new deal, the latest research from Moneyfacts.co.uk reveals the average cost of a loan has fallen and introductory interest-free credit card deals have improved year-on-year.

  • Loan rates have fallen on small sums – on a borrowing amount of £3,000 over a three-year repayment period, the average loan rate is down from 15.4% a year ago to 14.3% today.
  • Borrowers can avoid paying more than £600 in interest charges on an average loan by choosing a fee-free 0% credit card instead. The longest 0% balance transfer or money transfer card will cost less than £100 on a debt of £3,000.
  • Improvements to introductory credit card offers since January 2021 have resulted in the longest balance transfer term rising from 29 to 35 months, and 20 to 24 months for introductory purchases. Both deals do not charge a monthly card fee.

Top deals improve for borrowers with small debts

Starting a new year with a fresh start surrounding debt or even borrowing a small sum to make home improvements may be in the mindset of consumers. Thankfully for those considering a new deal, the latest research from Moneyfacts.co.uk reveals the average cost of a loan has fallen and introductory interest-free credit card deals have improved year-on-year.

  • Loan rates have fallen on small sums – on a borrowing amount of £3,000 over a three-year repayment period, the average loan rate is down from 15.4% a year ago to 14.3% today.
  • Borrowers can avoid paying more than £600 in interest charges on an average loan by choosing a fee-free 0% credit card instead. The longest 0% balance transfer or money transfer card will cost less than £100 on a debt of £3,000.
  • Improvements to introductory credit card offers since January 2021 have resulted in the longest balance transfer term rising from 29 to 35 months, and 20 to 24 months for introductory purchases. Both deals do not charge a monthly card fee.

£3,000 lump sum over three years

Provider, APR and fee

Total interest*

Average unsecured personal loan rate

14.3%

£661.90

Best unsecured personal loan

Metro Bank – 4.9%, no fee

£226.68

Longest 0% money transfer card

MBNA – 0% 18 months, 2.99% fee

£89.70

Longest 0% balance transfer card

Virgin Money – 0% 35 months, 2.94% fee

£88.20

Longest no-fee 0% balance transfer card

Sainsbury's Bank – 0% 21 months, no fee

£0

Longest 0% purchase card

Barclaycard – 0% 24 months, no fee

£0

*The lowest loan rates do not include peer-to-peer loans. Credit card costs assume a minimum repayment of £170 each month is made. Credit cards with annual fees are excluded, introductory deals shown. Metro Bank loan requires customers to have or open a current account. Source: Moneyfacts.co.uk

£3,000 lump sum over three years

Provider, APR and fee

Total interest*

Average unsecured personal loan rate

14.3%

£661.90

Best unsecured personal loan

Metro Bank – 4.9%, no fee

£226.68

Longest 0% money transfer card

MBNA – 0% 18 months, 2.99% fee

£89.70

Longest 0% balance transfer card

Virgin Money – 0% 35 months, 2.94% fee

£88.20

Longest no-fee 0% balance transfer card

Sainsbury's Bank – 0% 21 months, no fee

£0

Longest 0% purchase card

Barclaycard – 0% 24 months, no fee

£0

*The lowest loan rates do not include peer-to-peer loans. Credit card costs assume a minimum repayment of £170 each month is made. Credit cards with annual fees are excluded, introductory deals shown. Metro Bank loan requires customers to have or open a current account. Source: Moneyfacts.co.uk

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“Consumers looking to consolidate their debts or perhaps even fund the cost of some home improvements will be pleased to see loan rates have fallen since last year. At the start of a new year, it wouldn’t be too surprising for homeowners to aspire to improve their living space, particularly if they are using an area for home working. However, funding the cost may seem daunting, and in fact it could be cheaper to use a credit card instead of a loan. One of these options may be in minds for some, with others perhaps turning to them in need this year. Indeed, according to a recent study by LV=, 25% of consumers expect their finances to worsen over the next three months.

“The amount of interest someone would pay on a typical loan of £3,000 on average would be more than £600, but using the longest balance transfer card from Virgin Money would cost £88.20 in a transfer fee and provide borrowers with 35 months to pay off the debt before interest applies. In fact, those borrowers choosing a fee-free card instead could avoid paying any interest if they set aside £150 per month in repayments – with the longest fee-free deal from Sainsbury’s Bank offering 21 months interest-free for balance transfers.

“Borrowers looking to spend £3,000 upfront, such as on DIY home improvements, will find the best introductory purchase card from Barclaycard 24 months interest-free, which they can easily pay off with fixed £125 monthly repayments. Those who are in the red on their current account with £3,000 could move this by a money transfer transaction to MBNA offering 18 months interest-free, costing £89.70 as a transfer fee. In some circumstances, consumers may need to change their credit card fixed repayment to the bare minimum. However, if they don’t pay their debt back before their interest-free offer expires they will incur interest charges, which can typically be higher than on a loan.

“The best choice between a credit card or loan will entirely depend on how strict a borrower can be with their repayment plan, but what is certain is how important it is for borrowers to compare deals carefully. If borrowers are struggling with their debts, then seeking help from a debt charity is wise and it’s always worth checking any credit score before applying for a card or loan too, for example with Experian.”

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“Consumers looking to consolidate their debts or perhaps even fund the cost of some home improvements will be pleased to see loan rates have fallen since last year. At the start of a new year, it wouldn’t be too surprising for homeowners to aspire to improve their living space, particularly if they are using an area for home working. However, funding the cost may seem daunting, and in fact it could be cheaper to use a credit card instead of a loan. One of these options may be in minds for some, with others perhaps turning to them in need this year. Indeed, according to a recent study by LV=, 25% of consumers expect their finances to worsen over the next three months.

“The amount of interest someone would pay on a typical loan of £3,000 on average would be more than £600, but using the longest balance transfer card from Virgin Money would cost £88.20 in a transfer fee and provide borrowers with 35 months to pay off the debt before interest applies. In fact, those borrowers choosing a fee-free card instead could avoid paying any interest if they set aside £150 per month in repayments – with the longest fee-free deal from Sainsbury’s Bank offering 21 months interest-free for balance transfers.

“Borrowers looking to spend £3,000 upfront, such as on DIY home improvements, will find the best introductory purchase card from Barclaycard 24 months interest-free, which they can easily pay off with fixed £125 monthly repayments. Those who are in the red on their current account with £3,000 could move this by a money transfer transaction to MBNA offering 18 months interest-free, costing £89.70 as a transfer fee. In some circumstances, consumers may need to change their credit card fixed repayment to the bare minimum. However, if they don’t pay their debt back before their interest-free offer expires they will incur interest charges, which can typically be higher than on a loan.

“The best choice between a credit card or loan will entirely depend on how strict a borrower can be with their repayment plan, but what is certain is how important it is for borrowers to compare deals carefully. If borrowers are struggling with their debts, then seeking help from a debt charity is wise and it’s always worth checking any credit score before applying for a card or loan too, for example with Experian.”

Notes to editors

Pioneering financial comparison technology for over 30 years.

Moneyfacts Group plc is the UK’s leading provider of retail financial product data. Used by virtually every bank and building society in the UK, and supplied to the Bank of England, Financial Conduct Authority, Financial Ombudsman Service, HM Treasury, Prudential Regulatory Authority and UK Finance.

Our expert research team monitors the thousands of mortgages, savings, credit card, personal loan, business banking, life, pension and investment products in the UK.

Moneyfacts.co.uk is a financial product price comparison site, launched in 2000, which helps consumers compare thousands of financial products, including credit cards, savings, mortgages and many more. Unlike other comparison sites, Moneyfacts.co.uk shows whole of market data regardless of commercial bias, showing consumers a true picture of the best products based on the criteria they select.

We hope you find this press release insightful. We would appreciate a link back to Moneyfacts.co.uk if you decide to source this information.

For more information about us please see our key facts.

Broadcast

Our broadcast suite enables our finance experts to appear in-vision for television, and we regularly comment live on national and regional radio.

To arrange an interview for radio or television, please contact our press department. We have an in-house broadcast room.

 

Notes to editors

Pioneering financial comparison technology for over 30 years.

Moneyfacts Group plc is the UK’s leading provider of retail financial product data. Used by virtually every bank and building society in the UK, and supplied to the Bank of England, Financial Conduct Authority, Financial Ombudsman Service, HM Treasury, Prudential Regulatory Authority and UK Finance.

Our expert research team monitors the thousands of mortgages, savings, credit card, personal loan, business banking, life, pension and investment products in the UK.

Moneyfacts.co.uk is a financial product price comparison site, launched in 2000, which helps consumers compare thousands of financial products, including credit cards, savings, mortgages and many more. Unlike other comparison sites, Moneyfacts.co.uk shows whole of market data regardless of commercial bias, showing consumers a true picture of the best products based on the criteria they select.

We hope you find this press release insightful. We would appreciate a link back to Moneyfacts.co.uk if you decide to source this information.

For more information about us please see our key facts.

Broadcast

Our broadcast suite enables our finance experts to appear in-vision for television, and we regularly comment live on national and regional radio.

To arrange an interview for radio or television, please contact our press department. We have an in-house broadcast room.

 

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Rachel Springall Press Officer / Finance Expert
Eleanor Williams Press Officer / Finance Expert