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Last updated
January 10th, 2024

What is a low-interest loan?

A low-interest loan is one that offers a lower than usual rate of interest, making borrowing more affordable. That's because lower interest rates mean lower monthly repayments. If you stick to the same loan term, they also reduce the overall cost of borrowing as you’ll pay back what you owe more quickly.

Lenders take lots of factors into account when deciding who is eligible for a low-interest loan. These include:

  • How much you want to borrow

  • Your income and financial history

  • Your credit score

The rate a lender offers you could be lower than the advertised rate - you need a strong credit score to access the best low-interest loans. If your score is poor, you could be offered a higher rate than the headline one you saw on a website or advert.

Can I get a low-interest loan?

As with most types of financing, your credit history plays a vital role in the interest rate you’ll be offered on a loan. That’s because the better your credit history, the more likely you will be offered cheaper loans with lower interest rates.

If you have bad credit, you may find it difficult to get a low-interest loan. In these circumstances, you may need to consider a bad credit loan. This type of loan is offered by providers who are likely to limit the amount you can borrow and charge a higher rate of interest than standard loan companies.

Another alternative is to see if someone else – typically a family member or close friend – would be willing to guarantee making repayments on your behalf if you can’t. If this is the case, you may be able to get a guarantor loan

This can reduce the interest rate you pay, when compared to a bad credit loan as the bank or building society will be taking on less risk. But guarantor loans are still typically more expensive than standard loans.

The better your credit history, the more likely you will be offered cheaper loans.”

How to compare low interest loans

Finding the right loan isn’t a simple case of tracking down loans with a low APR – here are other important factors to consider:

The term

This is period over which you pay off your loans. Different providers will offer different minimum and maximum terms, but 3-10 years is standard for unsecured loans, or longer if the loan is secured.

Type of Interest rate

It isn't just the percentage rate that is important, but whether it's fixed or variable. A fixed rate means your interest rate won't change over the course of the loan term, so your repayments will be the same each month. Variable rates can go up or down each month, depending on external factors, such as the Bank of England base rate.


It's important to make sure you can afford the monthly repayment over the duration of the loan term.

Overall cost

Always keep in mind what your borrowing will cost you in total so you can judge the cost against the benefits of what you're borrowing for. This means taking into account other charges such as set-up or arrangement fees.

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See the interest rate you’re eligible for before you apply
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Comparing loans with low-interest rates

The interest rate is one of the most important numbers you need to consider when taking out a loan. This rate tells you, in percentage terms, how much interest you’ll pay on what you borrow. It is shown as an annual percentage rate (APR) which tells you what the total cost of borrowing would be for a year, including set up fees and charges.

As you can see from the graph below, the interest you pay overall can be affected even by small changes to the APR. Whatever the rate, you’ll also pay more interest the longer you take to pay off your debt.

The graph shows how the APR can affect the interest you’ll pay on a loan of £5,000 over 2 years.

How interest rates affect the cost of your loan
An illustration of how the interest rate affects the cost of your loan.

Based on a loan of £5,000 over a term of 2 years.

Other borrowing options

Low-interest loans can be a good option in the right circumstances, but it's always worth considering if another form of finance might better suit your needs. For instance, a 0% credit card might be a better option, as long as you can pay back what you owe in the introductory period.

There are several types of 0% cards, including balance transfer and money transfer options. But a credit card that gives you 0% interest on purchases is likely to be the best way of borrowing, provided you're disciplined enough to pay off your entire balance within the 0% interest period. That means you can borrow the money without paying any interest at all.

Think carefully about how long you need to pay back the borrowed amount and then choose the card that fits your needs - some cards have interest-free periods that last up to 21 months. 

Another option would be to do a balance transfer to another 0% credit card when the interest-free period ends. As you might expect, you need a healthy credit rating to use a credit card in this way. After all, you can only get access to 0% cards with high enough limits if you have a solid credit history. The risk with this approach is that if you don’t qualify for another 0% card at the end of your term, you’ll be stuck paying interest.

Even if you can’t get a 0% purchase or balance transfer card. It’s worth shopping around to see what rates you’re offered, and how they compare to loan APRs.


What does APR mean?

It stands for annual percentage rate, which is the interest you would pay on the total value of your loan over a year. It typically includes arrangement fees. The lower your APR, the lower your interest payments.

Is the interest rate fixed?

All the unsecured loans in this comparison offer fixed interest rates, so the amount you pay will stay the same throughout the term.

How long does it take to apply online?

Applying online can take minutes if you have your details ready. However, some secured loan applications take longer as the lender has to value your property or assets first.

Can I still get a loan with bad credit?

Yes, you can get a loan even if you have a low credit score. However, you are unlikely to be offered a low-interest loan, and you may need to apply for a specialist bad credit loan or guarantor loan. Taking steps to improve your credit rating will improve the interest rates you’re offered.

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About the author

Salman Haqqi
Salman Haqqi spent over a decade as a journalist reporting in several countries around the world. Now as a personal finance expert, he helps people make informed financial decisions.

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