How to compare personal loans
When you borrow, the headline interest rate only tells part of the story. The term, the APR and any fees together decide what a loan really costs. Comparing loans properly means looking at total interest, not just the monthly payment. Here's how.
APR, term and total cost
Three numbers shape every loan:
- APR — the annual cost of borrowing including compulsory fees, the fairest single comparison figure.
- Term — how long you repay over. Longer terms mean smaller monthly payments but more total interest.
- Total cost — the sum of all repayments, which reveals the true price of the loan.
Low monthly, high total
Lenders often advertise a low monthly payment, achieved by stretching the term. A £10,000 loan over 60 months has a lower monthly cost than over 36 months, but you pay interest for an extra two years. Always compare the total interest, not just the monthly figure.
The advertised APR may not be yours
Same amount, different deals
Borrowing £10,000: at 6.9% over 60 months the monthly payment is lower but you pay more months of interest; at 9.9% over 36 months the monthly cost is higher but the loan clears sooner with less total interest. Running both through the calculator shows which genuinely costs less over its life.
Common loan comparison mistakes
- Comparing on monthly payment alone. A longer term lowers the monthly cost but raises total interest.
- Ignoring fees. Arrangement fees and insurance add to the real cost — use the APR to capture them.
- Assuming you'll get the advertised rate. Representative APRs are only offered to most, not all, accepted applicants.
- Overlooking early-repayment charges. Some loans penalise overpayment; check before signing if you may repay early.