As loan rates continue to tumble, people with existing loans could benefit too.
Personal loan rates have fallen dramatically over the last few years, and that could be good news even if you already have a loan as you could switch to a cheaper deal.
How rates have fallen
As an example, the average rate paid by borrowers applying in branch at Nationwide for a medium-sized loan during May 2013 was 8.5%.
Now the building society offers a joint market-leading rate of 3.6% to its current account customers (or 3.9% to non-current account holders) on borrowing between £7,500 and £14,999.
M&S Bank, First Direct, Sainsbury's Bank and HSBC also offer a leading rate of 3.6% on medium sized-loans right now.
So for people with existing debt there's never been a better time to reduce the amount of interest they are paying and lower their monthly repayments on their loan by switching onto a cheaper deal.
To switch onto a cheaper deal, you’ll need to refinance or consolidate your debt.
This means taking out a new loan at a much better rate and using the money to pay back what you owe on your existing debt straight away.
By refinancing a loan or consolidating debts into a single loan with a cheaper rate, borrowers can make big savings.
For example a borrower who took out £15,000 over five years at 8.5% in June 2013 with Nationwide would today have a balance remaining of £9,721.85 – made up of £8,446.37 principal and £1,275.48 interest.
But if they transferred the outstanding principal balance (plus a typical early repayment charge of 58 days' interest) to a new rate of 3.6% over 36 months, Nationwide estimates they would save £728.49 in interest over the remaining three years.
In addition monthly repayments would fall from £307 a month to around £251 a month under the new deal.
Can I switch without penalty?
Loan providers have to allow you to pay off your loan in full before the end of the term. However, this is usually subject to an early repayment charge which is typically one or two months’ interest.
You will need to check the agreement you signed to see what your lender will charge you if you decide to leave early. It’s also a good idea to check what the set up costs of the new loan will be, if any.
Once you have all this information you’ll be better placed to understand whether it’s a sensible and worthwhile move to refinance or consolidate debt with a cheaper loan.
The cheapest personal loans
When looking for a personal loan you can generally choose between a small loan of £5,000-£7,499, a medium loan of £7,500-£15,000, or a large loan of more than £15,000. But the most competitive rates are normally found in the medium range.
Here's a round-up of the cheapest personal loans for those borrowing £10,000 over three years.