The impact of loan amount on loan APR
While most of us have an idea that the amount you want to borrow will have an impact on the interest rate you pay, the ins and outs of loan interest rates can come as a surprise.
In the following example, if you wanted to borrow £4,499, when the best APR on the market was 12.9% - you'd pay back £1,533 in interest over a 5 year term.
However, if you borrowed £5,000 you could get an APR of 8.8% and pay back £1,150 in interest over the same term. You end up paying back £383 more in interest for borrowing £500 less.
You'd be forgiven for thinking that if you were borrowing less money, you'd pay a lower interest rate, but more often than not this isn't the case. Here, Our Personal Loan Section explains how and why loan interest rates are affected by the amount you want to borrow
Why you pay a higher APR for a smaller loan
Generally the APR for a loan is an indication of the risk the company perceives it is taking and how likely they think they are to get their money back
When you think about the borrowing market in more general terms, it is clearer. Mortgages are typically high loan balances with lower interest rates, whereas payday loans are usually for very small amounts but have higher APRs
How to get a better loan rate
When looking for a loan, check the APRs available for a few different loan amounts. You could find that by borrowing more, you reduce the amount you pay back in interest. If you’re worried about the temptation of borrowing more money than you need you could invest the extra money or if there's no penalty pay the excess back straight away.. Compare loans now.