Best Loans with a Low Annual Percentage Rate

Learn about the importance of APR, the different types of loans and loan jargon.

Updated: May 18, 2024
Matt Crabtree

Written By

Matt Crabtree

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When looking to borrow money, plenty of options are available; one of the most popular finance types is a personal loan.

There are many different types of loans, and depending on what you need a loan for, there are a lot of loans on the market to choose from. When comparing loans, consider the annual percentage rate (APR).

APR is the yearly rate you'll be charged to borrow money from a lender. Some loans have high APR and others low. Your credit rating usually determines APR and credit limits. So, the better your credit score, the more likely low APR rates and higher credit limits will be available to you.

In this article, you'll learn the importance of APR, the different types of loans, and loan jargon, and we've made a list of the top loans with a low annual percentage rate.

ProviderScoreDetails
1. AIB (NI)★★★★★Click Here
2. Tesco Bank★★★★★Click Here
3. Sainsbury's Bank★★★★Click Here
4. Post Office★★★★Click Here
5. Virgin Money★★★★Click Here
6. Metro Bank★★★★★Click Here
7. Zopa★★★★★Click Here

What Is a Loan with a Low Annual Percentage Rates

Before explaining APR rates, let's look at what a loan is.

A loan is essentially when a lender advances money to a borrower. The lender is usually a business specialising in loans, financial institutions, or government. A lender will loan you money, and there's a set amount, a fixed interest rate, and a fixed loan term.

There are four main types of loans:

  • Secured loans: A secured loan is a loan in which the borrower pledges an asset as collateral for money. The collateral assets become a secured debt owed to the lender who gives the loan. Examples of secured loans include homeowner loans, home loans and second-charge mortgages. If you fail to repay the loan, you risk losing your assets.
  • Unsecured loans: Unlike a secured loan, an unsecured loan requires no collateral. Unsecured loan eligibility is determined by a borrower's creditworthiness, determined by their credit history. Unsecured loans include credit cards, student loans, and personal loans.
  • Fixed-rate: A fixed-rate loan is a loan that has a fixed interest rate that doesn't change throughout your loan period. The interest rate is agreed on at the beginning of the contract and stays the same until the contract ends. Examples of fixed-rate loans include car loans, personal loans, federal student loans, and fixed-rate mortgages.
  • Variable rate: A variable rate, sometimes a floating interest rate, applies to different finances. The idea is that the interest rate can change at any given time. Examples of variable-rate loans include mortgages, some credit cards, derivatives and corporate bonds.

Now, it's time to dive into a closer look at Annual Percentage Rates. The annual percentage rate is the interest rate you'll pay on the loan. Each lender will have set APRs, which usually change depending on your credit score and the type of loan you apply for. In the UK, the average interest rate for a £5,000 personal loan is 10.15% as of May 2023.

The higher the interest rate, the more you'll pay on the loan. However, the more you borrow, the lower the interest rate. For example, the average interest rate for a £10,000 personal loan is 5.85%, so sometimes borrowing more would decrease how much you pay towards interest.

Applicants with bad credit are usually offered high APR as they're seen as more of a risk than someone with a good credit score. The better your credit report, the lower APR will be on your loan. Usually, APR is subject to status.

Pros and Cons of Taking Out a Loan

We've compiled a list of all the pros and cons of taking out a loan with Low APR to help assist you with your loan research and ensure taking out a loan is the right decision.

Pros

✔️ Access to funds: Loans, especially personal loans, give you access to money you may not have had. People take out loans for various reasons, from home improvements to replacing a big-ticket item in your home. When people need access to money for one reason or another, loans are great for covering the cost of expensive items, allowing you to spread the purchase cost over a fixed term.

✔️ Competitive APR: Loan interest rates are generally lower than credit card rates. Each loan provider will have their own rates. Your credit history determines interest rates, so watch for the best loan deals.

✔️ Improve credit score: If you take out a loan and pay all your monthly repayments on time and in full, you can help improve your credit rating. Making your monthly repayments on time shows future lenders you're responsible with credit.

✔️ Fixed monthly repayments: At the beginning of your agreement, you'll set a loan repayment amount, which will be the same each month. So, you can budget around your loan.

✔️ Debt consolidation: You can use your loan to eliminate any existing debts. A debt consolidation loan can help you put all your debts into one place, so you're only making one monthly repayment instead of multiple.

✔️ Quicker process than credit card applications: Successful applicants will find out quickly if they've been accepted for a loan. Most lenders will let you know within 24 hours, and usually, you'll receive the money in your bank account within a couple of working days, if not sooner.

✔️ Flexible repayment terms: You can choose how long to take the loan, typically from one to seven years. Some lenders even let you pick the repayment date.

✔️ Higher borrowing limits: If you're looking to borrow a large sum of money, loans usually have higher borrowing limits than other finance options like credit cards.

Cons

❌️ Risk of falling into long-term debt: If you struggle to make your monthly repayments, you may fall behind on your payments and could risk getting into debt. If you take out a loan and already have other debts, you may be more likely to fall further into debt. You can avoid this by loaning money you know you can afford to repay.

❌️ Negative effect on your credit rating: If you miss your loan repayments, you risk harming your credit score. Any missed payments show on your credit report, so future lenders will see if you’re reliable with making repayments. Additionally, sometimes lenders will charge a missed payment fee. 

❌️ Potential early repayment charges: If you want to repay your loan early, there may be a charge. Most loan providers charge up to 58 days of added interest.

❌️ No interest-free period: You don't get an interest-free period with personal loans like with some credit cards.

Best Loans with a Low Annual Percentage Rate — Reviews

Unsecured loans tend to have lower interest rates than others, so we've listed the best loans with low APR.

Before applying to any of the loans we share with you, always compare loans to see which is best suited for your needs.

1. AIB (NI): Fixed Rate Personal Loan

  • Loan amount: £5,000 – £25,000
  • Early repayment charges: No
  • Representative APR: 5.6%

Representative example: With a loan of £10,000 over 60 payments, your monthly repayments will cost you £181.04 at a representative 5.6% APR. The total loan cost with interest is £11,462.40. Credit available subject to status.

You don't have to worry about increasing interest rates with AIB (NI). There is a fixed interest rate for all lending amounts, so regardless if you borrow £5,000 or £10,000, you'll only pay 5.6% interest. You can choose your fixed term from one to five years. If you wish to repay the loan early, you can do so without worrying about charges.

When you apply for a loan with AIB, they'll help you decide on fixed monthly repayments you're comfortable paying that fit your budget. You can get a quick quote free on their website before you apply.

New customers have to apply for the loan over the phone. You can arrange a callback for when it suits you. If you already hold an existing personal current account, you can apply online or via your AIB (NI) Mobile Banking app.

To be eligible for this personal loan, you must have a good credit score and be over 18.

2. Tesco Bank Loans: Clubcard Members are Entitled to Lower APR

  • Loan amount: £1,000 – £35,000
  • Early repayment charges: 2-month interest charge
  • Representative APR: 5.7% – 34.5%

Representative example: With a loan of £10,000 over a 5-year fixed term, your monthly repayments will cost you £192.15 at a representative 5.9% APR. The total loan cost with interest is £11,529. Credit available subject to status.

There is a wide range of personal loans offered by Tesco Bank. You can use your loan to buy a car, consolidate any existing debts, pay for home improvements, pay for a wedding or even plan a holiday. You can get a loan from £1,000 up to £35,000.

You can benefit from lower interest rates if you're a Clubcard member. If you’re not a Clubcard member, you can become one. However, you must have had a Clubcard for at least three months before applying.

If your application is successful, you could receive the money in your account in as little as two hours. If you're eligible, you could apply to delay your repayments by two months at the beginning of your loan. You can use Tesco Bank's Eligibility Checker to see if you'll be accepted before filling out an application without affecting your credit file.

Anyone can apply for a Tesco Bank loan if they're aged 18 or over and a UK resident.

3. Sainsbury's Bank: Nectar Members can Borrow up to £40,000

  • Loan amount: £1,000 – £25,000
  • Early repayment charges: One to two months of interest
  • Representative APR: From 5.7% to 29.9%

Representative example: With a loan of £10,000 over 60 months, your monthly repayments will cost you £191,71 at a representative 29% APR. The total loan cost with interest is £11,502.60. Credit available subject to status.

With the Sainsbury's Bank loan, you can loan between £1,000 and £25,000 for up to one to seven years. You can borrow up to £40,000 if you're a Nectar member. To work your loan into your budget, you can use Sainsbury's loan calculator to determine how much your loan is with interest and how much money you need to allocate to repayments.

When you apply for a loan from Sainsbury’s Bank, you can get instant approval, and your money will be in your account within as little as two hours or the next working day. If you’re looking for a loan for your home or want to share the responsibility, you can apply for a joint loan. 

To be eligible for a loan from Sainsbury's Bank, you must be at least 18 years old and under 80 when applying. You must be under 83 when the loan is due to be repaid in full.

You must also have a permanent UK address, be in permanent paid employment or retired with a pension. You'll need a gross annual income of over £7,500 and have no County Court Judgements (CCJs) or bankruptcies on your credit file.

4. Post Office Loans: Personal Loans up to £40,000

  • Loan amount: £1,000 – £40,000
  • Early repayment charges: Up to 58 days interest
  • Representative APR: 5.8% – 29.9%

Representative example: with a loan of £10,000 over a 5-year fixed term, your monthly repayments will cost you £191.71 at an illustrative 5.8% APR. The total loan cost with interest is £11,502.65. Credit available subject to status.

When you apply for a loan with the Post Office, in most cases, you'll get an instant decision upon completing the application. If your application is successful, the funds could be in your account the next working day.

You can borrow between £1,000 and £40,000 for up to seven years. When you apply, you'll get a personalised loan with interest rates determined by your credit history. The maximum APR you can get with this lender is 29.9%.

You can use the loan calculator on the website to calculate your monthly repayments and how much interest you'll pay over your loan period. You can also use the eligibility checker to see if you'll be accepted for a loan.

To be eligible for one of the Post Office's personal loans, you must be over 21 but at most 70 when the loan ends. You must have been a UK resident with a yearly income above £12,000 for three years. You'll need a good credit score without a history of bankruptcy or CCJs.

5. Virgin Money Loans: Loans Between £7,500 and £15,000 have the Lowest APR

  • Loan amount: £1,000 – £35,000
  • Early repayment charges: Up to 58 days of interest
  • Representative APR: 6.9% – 28.9%

Representative example: With a loan of £10,000 over five years, your monthly repayments will cost you £196.60 at a representative 6.9% APR. The total loan cost with interest is £11,795.58. Credit available subject to status.

If you're looking for an award-winning service, Moneyfacts awarded Virgin Money the Best Personal Loan Provider in 2020. All personal loans between £7,500 and £15,000 are guaranteed a 6.9% APR.

The application process is simple, only taking a couple of minutes. If accepted for a loan, the money will enter your bank account within two hours or by the end of the next working day.

You can use the online calculator to calculate your estimated payments and rate. You can alter the calculator to change the fixed term- you can choose from one to seven years to spread the cost of your loan.

To apply for Virgin Money's loans, you need to have a Virgin Money current account or be a Clydesdale Bank, Yorkshire Bank or B customer. You'll also need to be a UK resident over 18. Additionally, you'll need a good credit history and not be currently bankrupt or have any CCJs in the last three years.

6. Metro Bank Loans: Repay the Loan Early with No Early Repayment Fee

  • Loan amount: £1,000 – £35,000
  • Early repayment charges: None
  • Representative APR: 6.9% – 29.9%

Representative example: With a loan of £ 10,000 over five years, your monthly repayments will cost you £205.62 at a representative 8.9% APR. The total loan cost with interest is £12,337.20. Credit available subject to status.

RateSetter provides personal loans with Metro Bank. You can get an instant quote to find your rate before filling out your application. If your application is successful, you'll know the outcome the next working day. Once approved, you'll receive the money within the next working day. You can choose a monthly payment date and make extra payments whenever.

You can use your loan for a car purchase, a holiday, home improvements, or a wedding. You can apply online or in-store, whichever suits your needs the most. You can choose to repay your loan between one to five years.

To be eligible for a personal loan with RateSetter, you need to be 21 or over, have been a UK resident for a minimum of three years and have a regular source of monthly income.

You'll also need a good credit history, with no CCJs, bankruptcies, or debt relief orders on your credit file. If you have any other forms of credit, you'll need not to have missed any regular payments in the last 12 months.

7. Zopa Loans: Borrow up to £35,000 with a Zopa Personal Loan

  • Loan amount: £1,000 – £35,000
  • Early repayment charges: Yes
  • Representative APR: 22.90%

Representative example: With a loan of £10,000 over a 5-year fixed term, your monthly repayments will cost you £269.40 at a representative 22.9% APR. The total loan cost with interest after five years is £16,164. Credit available subject to status.

With Zopa Loans, you can get personalised loan rates dependent on your credit history with no impact on your credit score, so you'll know how much you can borrow, interest rates, and monthly repayments before you fill out your loan application.

When it comes to filling out your application, you can apply online in a few minutes, and if your loan is approved, you'll get the money in your bank account within two hours. Your repayment day is automatically set to 30 days after your loan is approved. However, you can pick a more convenient day if you wish.

To be eligible for a Zopa loan, you must be a minimum age of 20 and have a minimum annual income of £12,000.

Alternatives to Loans

If you think taking out an unsecured loan isn't for you, that's okay. You can consider other credit options and loans that better fit your needs.

Other credit alternative to unsecured loans:

  • Guarantor loans: If your credit rating isn't so good and you aren't eligible for the loans on our list, try looking at guarantor loans. A guarantor loan gives people with bad credit access to funds. You'll need a guarantor to verify your character and co-sign the credit agreement. If you can't repay the loan, then the responsibility falls onto your guarantor.
  • Homeowner loan: A secured loan that allows you to borrow money against your home. Your home acts as collateral if you can't pay back the loan. Homeowner loans are ideal if you require more significant sums of money.
  • Credit card: Applying for a credit card will give you access to credit you can continue using and paying back. There are different cards for different credit scores, so even if you've got bad credit, you can find a credit card that can help you improve your credit rating.
  • Buy Now Pay Later: If you need finance to buy items you need, consider Buy Now Pay Later services, as you can spread the cost of purchases to give yourself more time to pay it off.

Final Thoughts

Always compare loans before you apply for the first loan deal you find.

You may discover some low-interest loans with higher early repayment charges than others. Finding a loan agreement that works with your financial situation is essential.

There are different finance options, each with its own eligibility criteria. Before you go, we want to help you some more. We've compiled a list of tips for making yourself a more desirable candidate for loan applications:

  • Improve your credit file: Fixing a poor credit history is the best way to make yourself more desirable for loan applications. Making active changes to your credit record will help your credit score improve and make you a more desirable candidate to lend money to.
  • Consider a debt consolidation loan: If you're looking for a loan to reduce your debts, debt consolidation is the best way to pay off your debt and reduce your monthly outgoings.
  • Use an eligibility checker: Checking you're eligible before you fill out an application will save you time and prevent any unnecessary marks on your credit file.
  • Loans calculator: Working out your loan amount, the interest you'll pay, and how much your monthly repayments are can help you budget your finances better.

So, now that you know the top loans with low APR, you can start applying for a new loan.

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