Survival guide to personal loans

A new year means new plans. A kitchen revamp, or even an extension. Or maybe your reliable old banger gave up the ghost over Christmas and the New Year commute is looking grim.

Whatever you need the cash for, a personal loan is often - though not always - the cheapest way to borrow cash, as long as you have a robust credit rating and the means to repay it over the term agreed. And now, with some analysts warning that the nine year run of historically low interest rates may be coming to an end, could be your chance to bag a good deal before loans become more expensive.

What it costs

Typically, the more you borrow, the lower the interest rate you'll be charged. (Don't ever fall into the trap of borrowing more than you need, though. Be sure to work out exactly what your big 2017 project will set you back in advance and stick to it.)

But the market has been criticised recently for advertising deceptively low interest rates that become much higher once you punch in your personal circumstances, especially if those circumstances aren't typical. Even being self-employed can mean your rate is significantly higher than normal or, more often, you're simply turned down altogether. So how can you be sure of the best deal?

P2P

When we asked Moneysupermarket.com what the best buy deals were on personal loans from £1,000 - £1,999, £2,000 - £2,999, and £3,000 - £4,999 - enough for a modest car purchase or an affordable kitchen, the cheapest deal each time was from Zopa, the original peer-to-peer lender.

The advent of peer-to-peer lending has revolutionised the loan market by cutting out middle men and matching up savers looking for a better than average deal with would-be borrows hoping the beat the high street loan rates. When peer-to-peer (also known as P2P) started out it wasn't regulated in the way as the banks and customers were initially nervous about both lending and borrowing. That's all changed, with Uk registered P2P lenders falling under the same policing as traditional banks by the Financial Conduct Authority (FCA). From April 2017 they'll also have to have at least a £50,000 cash buffer to bail out their customers if one side of the deal fails for some reason.

Challengers

But that's not the only money shake up that could save you money on your borrowing. Challenger banks have been big news in the early 2010s as they try to snatch market share (your business) from the older, established high street players. To do that they offer better rates on all sorts of financial products, including personal loans. So it's little surprise that a bank you've probably never heard of, Ikano, is Moneysupermarket.com's best buy for larger loans of between £7,500 and £15,000. In fact, these guys have been operating in the UK for 20 years, having originally been the financial management arm of global furniture giant IKEA. They're now winning awards for their personal loan deals and service.