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26 Jul 2020

TSB launches market-leading personal loan: should you apply?

New deal comes as borrowing options plummet in wake of COVID-19

TSB has launched a new personal loan of up to £25,000, with the joint lowest rate on the market.

The new deal could offer a boost for borrowers at a time when choice is limited due to the COVID-19 outbreak.

Here, Which? explains how TSB's loan works, how to find the best rate, and the latest news on personal loan holidays.

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Loan market squeezed during COVID-19

Whether you're looking to fund home improvements or consolidate debts, you might find it harder than before to get a personal loan.

During the coronavirus outbreak, we've seen a reduction in the number of deals on the market, and that could be set to continue.

The Bank of England's latest Credit Conditions Survey found that the availability of unsecured credit dropped in the second quarter of the year, and it predicted availability will continue to fall in the next three months.

TSB personal loan: how it works

Amid an uncertain backdrop, TSB's new loan is bucking the trend.

TSB's deal allows new and existing customers to borrow £7,500 to £25,000 for up to five years.

Its headline rate of 2.8% APR makes it the joint cheapest deal currently on the market, alongside a deal from Cahoot.

Overpayments are allowed at any time, but if you settle the loan early you'll be charged 58 days' interest.

As with all personal loans, only 51% of applicants must be offered the headline rate, so - depending on your credit history - you may be offered a higher rate.

The good news is you can get a personalised quote before applying, which won't affect your credit score.

What are personal loans for?

Personal loans can be used for a variety of purposes, from buying a car to consolidating credit card debts into one monthly payment.

The attraction of borrowing with a loan rather than a credit card is that you'll have clarity on exactly how much you'll need to repay each month and for how long.

It's vital to your research before applying, however, as rates on personal loans range significantly.

How much you can borrow and at what rate will depend on your existing credit commitments and how you've managed debts in the past.

Best rates on personal loans

The tables below show the lowest headline rates currently available on personal loans of £5,000, £10,000 and £15,000.

As we mentioned above, not everyone who successfully applies for these products is guaranteed to be offered the rates shown below.

£5,000 over three years

LenderRate (APR)Monthly repaymentTotal repayment
Tesco Bank3.4%£146.17£5,262
MBNA3.5%£146.39£5,270
John Lewis3.6%£146.60£5,277

£10,000 over five years

LenderRate (APR)Monthly repaymentTotal repayment
TSB2.8%£178.64£10,718
Cahoot2.8%£178.64£10,718
MBNA2.9%£179.07£10,744

£15,000 over five years

LenderRate (APR)Monthly repaymentTotal repayment
TSB2.8%£267.96£16,078
Cahoot2.8%£267.96£16,078
MBNA2.9%£268.61£16,117

Is a loan right for me?

Taking out a loan is a big financial commitment, and falling behind on payments can have a significant effect on your abilities to borrow in the future.

If you're unsure which type of borrowing is best for you or are concerned about debt, consider taking expert advice from the debt charity StepChange or Citizens Advice.

Loans and COVID-19

In March, the government announced that borrowers facing financial difficulties due to COVID-19 could pause repayments on credit cards, loans and mortgages for three months.

Data from UK Finance released last week shows 707,000 payment deferrals on personal loans have been granted so far.

Its latest advice is that those who are now able to return to making repayments should do so, as taking a longer payment holiday ultimately means a higher overall cost of borrowing.

If you've taken out a payment holiday, your provider will contact you before the end of the three-month period to discuss your options.

If you're yet to take one, you can apply for one until 31 October, but speak to your lender first as it may be able to offer more suitable alternatives.

Please note that the information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms & conditions of the personal loan provider before committing to any financial products.