Want a cheap unsecured personal loan? It was relatively simple a year ago to get one at a competitive interest rate. Now, six months of financial turbulence and credit crunching has put most lenders on red alert.

Obtaining the best interest rate is tough, even for potential borrowers with decent credit ratings, as providers tighten up on their lending criteria.

Getting the best deal
But you're still determined; you want that new car or there's the cost of a wedding to fund. Despite increased interest rates, a personal loan of £10,000 or £15,000 is, in your circumstances, an ideal way of raising the necessary cash.

How do you achieve the best financial deal?
The keys to a cheap personal loan are the cost of the monthly repayment and the total cost of the loan over its term. You need to compare like with like.

Personal loans can be flexible in the amount borrowed and length of repayment term (usually two to seven years), but remember that borrowing over a longer period to minimise the monthly repayment will significantly increase the cost of the loan and the total amount paid in interest.

Some loan providers structure deals so that lower interest rates apply once a certain loan threshold is exceeded; the annual percentage rate (APR) can drop to around 7% for loans above £5,000. Then there are incentives such as repayment holidays, but you need to be aware that interest accrues during that holiday period.

Beware the asterisk
It's the APR you need to focus on when comparing personal loan rates, particularly if it's followed by the word "typical" and a small asterisk. Don't automatically assume this is the rate you'll be offered.

Many lenders operate this system, an example being AA Loans. At the beginning of this month it was offering just 6.5% APR typical on loans of £7,000 to £25,000 at terms of up to seven years. I was given the opportunity to borrow £8,000 and pay £157.66 per month for 60 months; total amount repayable £9,459.60.

Am I typical though? The asterisk referred to a footnote that said: "the rate offered will depend on credit assessment procedures, your personal circumstances and other related factors. AA loan rates range from 6.5% to 22.3% on loans of £7,000 to £25,000."

The Consumer Credit Act of 2004 stipulates in its rules for the advertising of loan rates that two-thirds of successful loan applicants responding to an advertisement must be offered the quoted APR. The unlucky one-third draw the short straw of risk-based pricing, whereby credit history is scrutinised and personal loans offered (if at all) are at a more expensive APR.

Your very own personal rate
However, there is now a growing tendency for banks and other loan providers to avoid the upfront headline typical APR. This way they can sidestep the advertising rules.

The concept of personal pricing has moved to the fore, with customers being offered an individual rate of interest which reflects their circumstances, the tightened lending criteria, and the size of personal loan required. The loan rate is usually subject to adjustment after a full credit search has been carried out.

This is why, when hunting down the best personal loan in these troubled fiscal times, your credit rating is more important than ever. Your credit situation must be as squeaky clean as possible. Check your situation by ordering a copy of your credit file from one of the three recognised agencies, such as Experian.

Correct any mistakes
If you defaulted on a past credit repayment, but there was a good reason (such as a divorce), get this fact noted on your file. Also make sure you are still on the electoral roll, especially if you have moved address recently.

Don't leave a footprint on your file, caused by too many unsuccessful loan applications in a short time frame. Every time you apply for credit, there's a detrimental impact on your file.

Do you need protection?
Whatever personal loan arrangement you come to, beware the iniquitous payment protection insurance (PPI). Technically this should be voluntary but most personal loan quotes automatically include PPI, usually at a very expensive level.

Bought this way, PPI can rack up the cost of a loan. The policy is paid for upfront and the amount added to the amount borrowed, increasing the effective APR quite substantially. You end up paying interest on both the premium and the actual loan.

The Financial Services Authority is currently investigating alleged mis-selling of these policies; it recently fined HFC (part of HSBC) a record £1.1 million for failing to meet minimum sales standards.

If payment protection is required then it's best to opt for a stand-alone policy at a monthly premium from an independent PPI provider such as Paymentcare. However, first be sure you really need it. Do you have other insurances which will cover personal loan repayments in the event of accident, sickness or unemployment?

Note that if you're self-employed or employed on short term contracts, you are usually excluded from PPI cover anyway.