If you are looking to borrow more than £5,000, for example to fund a home improvement or pay off a big credit card debt or overdraft, then a personal loan may well be your best option. If you do decide to take out a loan to pay off a credit card or store card debt, you should cut up those cards, as the temptation to carry on using them may get you into even deeper financial trouble.
Unsecured loans have several advantages over credit cards when borrowing large amounts. Firstly, the interest rates tend to be a lot lower, at an average of about 10% as compared to the 14.5% or so you could expect to pay on a credit card. Secondly, although the minimum repayment may be higher, you will have a definite end in sight to your debt, whereas you could end up paying for a credit card forever if you do not pay more than the minimum payment each month.
However, personal loans for smaller amounts of money are quite poor value when compared to credit cards. For example, a £1,000 loan might set you back as much as 20% per year in interest payments. This is because lenders usually offer interest rate discounts for bigger loans. When you are comparing different loans, you should always consider the total cost of the loan including the interest, as the difference between one loan and another can be massive.  Santander personal loans are currently one of the cheapest, with typical annual percentage rates of around 8.9%.
Most loans are advertised with a ‘typical’ interest rate, which is the rate that, under UK banking regulations, at least two thirds of their customers should be able to get. Some lenders will not advertise their typical rate in order to get around this legislation. The APR you are offered will depend very much on the size of the loan and your own personal credit history. If you have a good, clean record of making payments for credit cards and mobile phone contracts on time, then you can expect a favourable rate. However, if you have a history of late payments and loan defaults, then you will probably have to pay a higher rate, if you are accepted for the loan at all.
