Exposed: Why borrowing less costs more

Borrowers looking for less than £5,000 in personal loans are paying around 130% more for their loan than they would have four years ago, according to research by Moneysupermarket.com, while those needing more than £7,000 are getting a better deal.

The gulf in average interest rates between loans of £3,000 and £15,000 is now a massive 5.8%, so you have to be canny about your options. Here are our suggestions if you want to borrow £3,000 over three years.

Zopa A* 10% Interest Rate

Pros: A relatively low rate on a personal loan for this period. Monthly repayments would be £96.20 (Moneyfacts data).

Cons: Has a fee of £118.50. Payments must be made by direct debit.

Any exclusions? You must be at least 26 years old. Only available to new customers.

Alternatives: If it is for a purchase, consider a credit card with a low rate of interest. Halifax Easy Rate Mastercard 6.9% APR on purchases On £3,000 over three years, the interest would be £484.86 with the Zopa loan, but just £329.79 with the Halifax card – a saving of £155.70 over the term.

Further reference: Speak to a loan adviser Related: Credit card comparisons