Personal Loan Rates On The Up
Personal loan rates have soared in the last couple of months. While there has been no change in the Bank of England's base rate since July when it was raised to 5.75%, there have been a number of rises in personal loan interest rates as the credit crunch takes its toll.
Thirty-two loan providers were surveyed and the results were startling. Some have pushed rates up by 3% - that's 12 times the 0.25% rise by the Bank. The average rise across the 32 providers was 0.93%.
The survey, by comparison website uSwitch.com also found that if you get your personal loan rate face to face in branches, or over the phone your rate may be up to five times higher than if you were to use the internet to arrange your loan.
The increases apply to people looking for a new loan - they have not been applied to existing loans - and will only pile misery onto those already having difficulties with finances following gradually increasing mortgage and household bills over the last 15 months.
It is estimated that there are 12 million adults in the UK with a combined total of £66bn of outstanding personal loans, which amounts to more than double the amount of credit card debt in the country.
Two thirds of borrowers are using personal loans to consolidate debts elsewhere - overdrafts and credit cards - but interest rates can vary enormously, from less than 7% to over 20%.
Comparisons show that a borrower taking out a loan of £5,000 over five years at 6.9% would have to pay back a total of £5,897, but if the rate was 9.9% for the same amount over the same period the total payback would rise to £6,297.
With such a difference between online and phone/personal enquiries, the advice is to look on the internet for the best deals. The average for a loan when you talk to someone has risen by 1% since July, but on the internet the rise has only been 0.2%. The average rate for online deals is 7.7%, but for the others it’s 8.7%
There can also be a big difference between the rates being advertised and those that a customer receives in the end. This is because lenders are beginning to use what they term "personal pricing", where they base the interest rate on the customer's credit history. This makes shopping around more difficult, because you can't tell the rate you're going to get until you've gone through a quotation process.
Debt support group Credit Action said: "People must make sure they can afford a loan and still look for the best deal."
The Bank of England has raised the base rate five times in quarter point rises since August 2006, taking the rate from 4.5% to 5.75%. These have hit homeowners hard, adding around £230 to the cost of monthly repayments on an interest-only mortgage of £250,000. The latest thinking is that the next base rate move will be a cut, but it is unlikely to pass on soon or in full either in mortgage rates or loan rates.
Published on October 26, 2007
Digg | 
del.icio.us | 
StumbleUpon | 
Reddit | 
Yahoo! | 
My favourites
Latest Loan Articles
Council Tax Bills In England Set To Rise By 3.9%
Council tax bills are expected to rise by an average of 3.9% in April. Costs of policing and employing more Community Support Officers have risen sharply thus affecting the decision to raise the tax. Local Government Minister says there is no excuse for this tax increase because councils could be saving as much as £1.5bn by simply cutting waste and reinvesting in local services... Read More
February 29, 2008
Will Personal Insolvencies Rise As Spending Surpasses Average Income?
Now that the credit crunch is firmly affecting the UK, personal insolvencies are expected to rise in 2008. Consumers prior to the last quarter of 2007 were able to access credit cards, loans, and mortgage products almost irrespective of their credit history. Living costs and expenditures on non-essential items are outweighing average earnings leaving many UK homeowners unable to make repayments and relying dangerously on credit cards bail them out... Read More
February 5, 2008
PPI Profits Sustain Personal Loan Market
Payment Protection Insurance offers huge profits for lenders who sell this product. PPI is a type of protection for the mortgage, loan, or credit card borrower in the event they become unemployed or for some reason cannot make their repayments. However, PPI is expensive and limited in its cover whilst many buyers often are unable to claim on it. The FSA is levying heavy fines to firms that mis-sell Payment Protection Insurance... Read More
February 1, 2008
More People Live In Fear Of Bankruptcy Or Repossession
Recent reports by experts and analysts reveal a real 'frenzy of fear' amongst many UK consumers. Due to the current credit crisis, rising mortgage costs, increasing inflation, and rising utility bills, homeowners and consumers alike are finding it difficult to manage. Home repossessions and bankruptcies are expected to rise this year and some say the 'fear' could be a good thing for consumers to tighten their spending... Read More
January 31, 2008
Northern Rock Looks Set To Be Nationalised
The threat of nationalising Northern Rock has shareholders worried. Investors were warned last week they could lose their invested money if the bank is sold. David Cameron is criticizing ministers for the takeover, saying the nationalisation of Northern Rock would be a final blow to Gordon Brown's economic credibility. ... Read More
January 16, 2008
Refer a Friend
Why not tell a friend about Money Outlet? Click here
