Borrowers pay on average twice the advertised interest rates for personal loans, according to research by Saga Money. The average advertised loan rate is 3.5 per cent, but Bank of England data shows that customers typically pay 6.9 per cent for a personal loan.

It is a big difference, but it is also perfectly legal. The advertised rate must be taken up by 51 per cent of customers who are accepted for a loan, according to rules laid down by the Financial Conduct Authority. In other words, almost half of accepted loan customers end up paying more than the advertised rate.

Gloria Barker, head of personal loans at Saga, which is one of the few lenders to offer a single, flat interest rate, said: “Consumer awareness of the way the personal loan market works is low. Over half of people are unaware that even when accepted for a loan they may be offered a higher rate than advertised and by the time they discover this they are likely to have already left a footprint on their credit record.

“More needs to be done to make people aware that the rate advertised is not the rate they will necessarily get.”

Most lenders carry out a credit check when you apply for a personal loan and the rate you pay often depends largely on your credit score. If you have struggled with debt in the past or if you have blotted your credit record, you will either be offered a higher rate of interest or be turned down flat.

Footprints on your credit record can affect your score because lenders are wary of people who make multiple applications for loans.

Kevin Pratt of MoneySuperMarket, the comparison website, said: "If you apply for a loan with a bank or building society and get rejected, that will be noted on your file, and all the other institutions will see that you've been turned down.

“Rack up a few rejections in short order and lenders will draw the conclusion that you're a bad credit risk.”

It is therefore a good idea to use a so-called soft search facility on a comparison website or on the lender’s own website. You can then find out if the lender is likely to offer you a good deal without leaving a visible trace on your credit file.

Rachel Springall of Moneyfacts, the financial data firm, agreed that borrowers should check their credit file to make sure it is up to date and does not contain any errors, stressing that “it’s wise to take a look at your credit file”.

There are several other things to bear in mind before you apply for credit. Here is the Herald’s guide to getting the best deal on a personal loan.

Watch out for fees

Some lenders charge arrangement or admin fees that can bump up the total cost of credit. You might also be stung with an early redemption fee if you decide to pay off the loan early.

Smaller rates for bigger loans

Lenders generally charge lower rates of interest for bigger loans. For example, Clydesdale Bank charges three per cent on loans between £7,500 and £25,000. But the rate is 20.9 per cent if you want to borrow between £1,000 and £2,999. It can make financial sense to borrow a bit more if you are near a threshold, but do not be lured into borrowing more than you can reasonably afford.

Tot up the total interest

It can be tempting to spread the loan over a longer term in order to make the monthly payments more manageable. For example, if you borrow £7,500 over 36 months at three per cent, you will make monthly payments of £218. Extend the term to 60 months, and the monthly payments fall to £135. But the longer term also boosts the amount you will pay in total interest - £578 compared with £347, a difference of £231.

Consider cheaper alternatives

A zero rate credit card is a cheap way to borrow money because you pay no interest for the term of the deal. However, credit limits on credit cards are typically about £5,000. If you want to borrow a large amount, a credit card might not therefore be suitable. Also, the zero per cent period is unlikely to last much longer than about two years – and if you cannot pay back the money before the deal expires, you will start to rack up interest at the standard rate.

Customer perks

Some banks and building societies offer preferential loan rates to existing customers. It might be worth contacting your current account, mortgage or savings account provider if you are looking for a personal loan.