Is my bank the best place to go for an unsecured loan?

As the weather improves, so does our desire to make improvements to our homes, and springtime is traditionally the time of year when most people put their DIY plans into action.  Most of us however, do not have the cash available to pay for home improvements outright, so we have to borrow it.  However, there are now more and more options for borrowing, with unsecured loans rates at an all- time low, and ‘other’ lenders now available, is the bank my best option?

The simple answer is, it depends on how much you want to borrow. If you want more than £7,500 then yes, the banks are clambering over themselves for your business. Unsecured loans rates with Clydesdale and Tesco Bank are at 3.4%, which is amongst the cheapest rates ever known for unsecured lending.

However, if you only need say £2,000-£3,000 then the banks may not be your best option. A £3,000 unsecured loan rate is about 16% APR, with this increasing to as much as 29.9% APR. Peer-to-peer lending is a much cheaper option, with Zopa, Rate Setter and Lending works all charging around 5.3% APR or less on loans of £3,000 over a three year period.

If you feel confident that you can repay what your borrowed over a shorter time period, then a 0% credit card may be even cheaper. Sainsbury’s bank and the Post Office Money credit cards are both offering 0% on purchases for 25 and 27 months, so you won’t pay any interest so long as you make the repayments on time within the timescale, which is just over 2 years.

If this perhaps is too much, then you may wish to consider the MBNA Everyday plus Credit Card. The card offers a competitive interest rate of just 7.4% APR, but unlike its nearest rivals, it allows you to transfer money into your bank account without a fee, thus providing increased flexibility and options.

Similarly Virgin money offer the money transfer option free for 32 months, subject to a one off transfer fee of 1.69% of the sum transferred.

So before you spend hours dreaming about that new kitchen, or new downstairs cloakroom, remember that obtaining the right financial deal for your circumstances is the most important thing. Do your research and make sure you are confident in what you want and your budget. Taking an expensive unsecured loan from your bank may be something you will regret.