How to compare loans

Most people who borrow want the same thing, a loan they can repay comfortably at a fair cost. Getting a few quotes and comparing them well is how you find it. This page explains what to put side by side and how to read the figures.

Start with what you can afford

Citizens Advice suggests working out your budget first. Add up what comes into your household and what goes out. That tells you how much you can repay each month, for the whole life of the loan.

It also helps you choose a length. Spreading a loan over longer can lower the monthly payment. It usually means paying more in total.

Compare like with like

The Annual Percentage Rate, or APR, is the standard way to show the cost of borrowing. It is most useful when the loans you compare are for the same amount over the same period.

Look at the total amount you will repay as well as the APR. Citizens Advice points out that a shorter repayment period can be a better deal than a slightly lower APR. Check too whether the rate is fixed or variable.

What the advertised rate means

Loan adverts usually show a representative APR. Under the Financial Conduct Authority's rules, the lender must expect at least 51% of the loans taken out from that advert to be at that rate or lower.

So the rate you are offered can be higher than the one advertised. It depends on the lender's view of you. Compare the rates you are actually offered, not only the advertised ones.

Costs the APR may leave out

Some charges are not included in the APR. Ask each lender about them before you choose. They can include these.

A fee for paying the loan off early.
An arrangement fee, which may be added to the loan so you pay interest on it too.
Charges for late or missed payments.

The information you get before you sign

Most lenders have a legal duty to give you pre-contract information that you can take away and study. It sets out the amount of credit, the total charge for credit, the interest rate and the repayments. It also states your rights if things go wrong. Citizens Advice suggests taking it home so you have time to take it all in.

Check whether a loan is secured. With a secured loan, the lender can take court action to repossess your home if you do not keep up the repayments.

Comparison sites, brokers and searches

A credit broker helps you find a lender. If you have been searching online for a loan, you may have used one. Brokers must tell you that they are a broker and not a lender. Check that a broker or lender is on the FCA register, and be careful of anyone who asks for a fee up front.

Applying to lots of lenders leaves a trail on your credit file. Lenders can see searches from the last 12 months. The Information Commissioner's Office says searches should not harm your credit history on their own, but many in a short time can suggest you are having trouble getting credit. So compare first, and apply once you have chosen.