How do I get the best possible personal loan interest rate?

Quantum912

Hello all,

I'm looking for advice please on how I can secure a £15K loan over 5 years for a special purchase and get the lowest possible interest rate.

I've gone through the MSE loan eligibility checker and read advice on the forums which seems to vary, but would like the best advice to reduce the interest rate I'm offered as far as possible legitimately. I understand all the nonsense about the headline rates and the 51% of applicants who will get the best rate. Unfortunately, I haven't been offered that rate.....yet!

As a bit of background, my wife and I have been retired for 5 years and have recently paid off our mortgage. My wife has recently started to receive her State Pension and I should get mine early next year. We don't have any other debt now, but I have 5 credit card accounts with about £30K credit limit in total although I only use one of them which I pay off in full each month. Neither of us have any CCJ's, defaults on any payments etc., so our files are completely clean and unblemished. I can easily afford the repayments on the proposed loan.

My questions are:

Should I cancel the credit cards I don't use and keep just maybe 2, i.e. 1 plus a spare? I've read it's not the actual debt that's important but the potential debt that lenders look at to judge the risk of them losing their money. How long after cancelling the cards will it be recorded against my credit score/pre-approved credit limit? When and how should I cancel the accounts, all at the same time or space them out?

Some lenders ask specifically what the loan is for whilst others don't give many options. My purchase isn't specifically listed on any of the lender sites I've seen so far so "Other" covers it, but how much can the choice of answer affect the rate, if any? Could I be "creative" or could that be classed as fraud?

I note some lenders do a "Soft search" (Sainsbury's Bank is an example) against the applicant's credit file whilst others put a "Hard search" (Tesco Bank) which is visible to all. I'm loathe to just apply to several lenders (which could each mark my credit file) just to find out what rate I'll be offered, as this could scupper my chances of getting a low rate. What's the best approach to ensure I don't screw up this aspect?

I'm hoping to actually obtain the loan in the next couple of months before the forecast interest rate rises come into effect, but don't want to rush it and "spook" any potential lenders if they see a lot of activity in a short time. Any thoughts please?

Many thanks for any advice,

Frank.

ItsComingRome

You can't make the rate you're offered by a lender better without committing fraud.

If you're looking to take a loan out in the next two months then most of what you're proposing (aside from possibly being harmful to your chances) is unlikely to propagate your files in time for your application.

If you really want to know a trick, don't apply to the lowest rate lender.

Given your age, however, and potentially limited income, you might be lucky to get an offer at all.

MEM62

You stand the best chance of getting the best rate by having the best credit history. 

You say you recently paid off your mortgage.  Any particular reason why you didn't use some of those funds to clear your credit card instead?  After all, your mortgage debt would have been costing your circa 2 - 2.5% whereas the interest of your credit cards is significantly higher.   

breaking_free

MEM62 said:

You say you recently paid off your mortgage.  Any particular reason why you didn't use some of those funds to clear your credit card instead? 

The OP doesn't say that they have £30K in debt to credit cards - they have available credit of £30K. OP pays off the single credit card he actually uses in full each month.

MEM62

breaking_free said:

MEM62 said:

You say you recently paid off your mortgage.  Any particular reason why you didn't use some of those funds to clear your credit card instead? 

The OP doesn't say that they have £30K in debt to credit cards - they have available credit of £30K. OP pays off the single credit card he actually uses in full each month.

Should have read it properly, shouldn't I?

ndf9876

My advice would be to use the eligibility checkers that do "Soft Searches" as sometimes (e.g. Lloyds Bank) they will tell you what rate you'd "probably" be offered. Also, don't overlook the likes of Clearscore, which *might* offer you a guaranteed rate.

Other than that, and the advice already given by others, there is no "magic trick" to getting a 2.8% loan. 

sammyjammy

Quantum912 said:

I'm hoping to actually obtain the loan in the next couple of months before the forecast interest rate rises come into effect, but don't want to rush it and "spook" any potential lenders if they see a lot of activity in a short time. Any thoughts please?

What forecast in interest rate rises is that then?

Nebulous2

The lenders with the best rates, the table-topping ones, have the most competition.  People with the best histories will automatically head there and getting into the 51% can be more difficult than people expect. 

You'll only know for sure once you try. Go for the best rate you can find - probably under 3% and see if you hit the 51%. If they offer you a higher rate loan, then move down the table a bit to 3.1-3.2% or so and apply again. It will be easier to get into the 51% at that point. The difference in interest actually paid will be modest. 

If you still aren't accepted then maybe you need to wait a bit. 

Don't worry about the credit card limits. They aren't particularly high and are an indicator that companies trust you. Closing some down shortly before a loan application may concern a lender, any changes on your report can make the computer twitchy. 

Quantum912

Hi all,

Thanks for your comments and advice. All points noted.

I'll see how it goes and if it works out, I'll put the details on here.

Frank.

[Deleted User]

sammyjammy said:

Quantum912 said:

I'm hoping to actually obtain the loan in the next couple of months before the forecast interest rate rises come into effect, but don't want to rush it and "spook" any potential lenders if they see a lot of activity in a short time. Any thoughts please?

What forecast in interest rate rises is that then?

Traders are betting on the BoE November meeting being a +0.25% rise to deal with inflation as Andrew Bailey has hinted at. Not huge in the scheme of things but loan companies might use it as an excuse to bump rates a bit

Quantum912

Hi all,

Just a thanks and an update.

I applied to HSBC for a £15K loan, as I've had various accounts with them for over 40 years. Their loyalty to me was an offer at 5.9% which I immediately declined. This left a mark on my credit file, so I was dubious about any further applications with other lenders.

I next applied to Tesco Bank for the same amount and was pleasantly surprised with an offer at 2.8% which I accepted and got the money paid in my HSBC bank account within a couple of days. The difference saves me £20 per month or £1200 total over the HSBC loan for its duration.

Shop around as best you can and don't take the first offers you get.

Frank.