Which loan rates have jumped 44%?
The credit crunch has caused untold damage to the British economy, as the front pages of newspapers regularly remind us.
While homeowners with tracker mortgages may have had their hearts cheered by falling repayments, the base rate cuts intended to fight the downturn have arguably done little to help anyone else.
Savers have seen their rates slashed, while other forms of borrowing – such as credit cards, store cards and overdrafts – have become more expensive, not less.
Among the worst casualties of the credit crunch have been personal loans. Credit is scarce and, as banks have become choosier about who they will (and won’t) lend to, the rates on some loans have significantly increased.
However, all is not lost…
Which rates aren’t great?
New data from Moneyfacts shows just how high some personal loan rates have been pushed since May 2007, before the credit crunch took hold.
According to its report, the average interest rate on a loan of £10,000 has increased by a pocket-pinching 24%, from 7.4% two years ago to 9.2% today.
Likewise, the cost of a £25,000 loan has increased from an average of 7.3% to 9.2% over the past two years. That’s a 26% rise.
Hardest hit, however, are medium-sized loans. Moneyfacts’ data shows that, on average, the cost of a £5,000 loan has gone up by a staggering 44%! While the average interest rate on a loan this size was just 8.6% in May 2007, it now stands at a far less friendly 12.4%.
Depressing data
These numbers paint a pretty bleak picture for anyone looking to borrow right now.
As you can see, loans of £5,000 (or less) have increased in cost by more than loans for larger amounts.
However, it is worth remembering Moneyfacts’ data is based on averages – so not all personal loan rates have soared by such significant margins.
While some lenders have seriously ramped up their rates, others have managed to maintain competitive deals.
This means that, if you’re looking for a loan, it’s now more important than ever to shop around for the best offer you can find.
Decent deals
Luckily, there are still some reasonably-priced loans available.
Here are my top picks, first for a loan of £5,000 over three years and then for a loan of £10,000 over five years.
| Personal loan | APR (Typical) | T.A.R. (Total Amount Repayable) |
| Tesco Loan | 8.0% | £5,617 |
| Sainsbury’s Loan | 8.1% | £5,628 |
| Alliance & Leicester | 8.8% | £5,679 |
(Based on a loan of £5,000 over three years with no repayment holiday or payment protection insurance premiums included.)
| Personal loan | APR (Typical) | T.A.R. (Total Amount Repayable) |
| Tesco Loan | 7.9% | £12,065 |
| Alliance & Leicester | 8% | £12,086 |
| Sainsbury’s Loan | 8.1% | £12,125 |
(Based on a loan of £10,000 over five years with no repayment holiday or payment protection insurance premiums included).
It is worth noting that the rates on offer for loans of £5,000 are slightly less attractive than those you might get for borrowing more. Right now, it seems lenders reserve their very cheapest deals for customers who borrow at least £7,500.
As you can see, there is little to choose between the deals on offer for £10,000 loans from Tesco, Alliance and Leicester and Sainsbury’s – and all three rates are lower than the 9.2% average quoted by Moneyfacts.
Having said that, both Tesco and Sainsbury’s are offering rates well below the Moneyfacts average of 12.4% on loans of £5,000. This is good news for borrowers who don’t need to access bigger sums.
Things to consider
Don’t forget that, when it comes to applying for any form of credit, your credit history will play a large part in whether or not you are successful.
It is always worth checking what’s in your credit report before you try to take out a new loan or credit card. If your record isn’t spotless, you’re unlikely to be accepted for the market’s top products.
Remember, too, that a rejected application for any form of credit will show up as a ‘footprint’ on your credit file. If a lender sees too many of these close together, it won’t be inclined to give you credit – so it is worth targeting your application and trying for a rate you feel you’re likely to get.
However, lenders are only obliged to offer their ‘typical’ rates on any product to two thirds of applicants. Therefore, there is always a chance you might be offered a different (probably worse) rate than the one advertised on any loan or credit card.
Debt busters
If you’re thinking of taking out a loan to pay off existing debts, this article might help you decide whether it’s the right option for you.
While a 0% balance transfer credit card or a long term, low rate deal could be a cheaper way to pay off old borrowing, competitive personal loan rates are still much cheaper than the typical APRs charged on credit cards and store cards – and loans offer a structured repayment schedule you might find appealing.
Finally, I’d attach the following health warning to any form of credit at the moment: don’t go into debt if it is avoidable, and don’t borrow more than you can reasonably afford to repay. With the recession in full swing, we should all be making sure our finances are as ship-shape as possible – so make sure any loan or credit card you take out helps, rather than hinders, this.
**Articles featured on BeatThatQuote.com are for information purposes only and reflect the views of individual writers. Articles are not, and should not be considered as, financial advice. BeatThatQuote.com strongly encourages our readers not to rely solely on information contained within this article/our website, but to conduct their own research and seek independent advice about the financial products they purchase.**
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