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Personal loan rates plummet to lowest ever level

24th August 2015 Print

Average personal loan rates for both £5,000 and £7,500 have plummeted to their lowest ever level, according to new figures from MoneySuperMarket.

Since the start of the year, rates have steadily decreased, and the average APR on loans of £5,000 over five years is currently 6.05 per cent – a drop of 21 per cent since January’s average of 7.63 per cent. The most significant fall came just this month, as the average rate in July was as much as 7.34 per cent.

Further analysis by MoneySuperMarket found that those looking at borrowing £7,500 have also benefited from falling rates. The current average on loans at this level stands at 4.19 per cent compared to 5.01 per cent in January, representing an impressive £168 saving over a term of five years and a fall in rate of 16 per cent.

It’s not just loans within the lower borrowing category that have seen a reduction in headline rates. Further research has revealed that some lenders have substantially reduced the rate loans in the £15,001-£19,999 bracket over the last month. Most notably, Sainsbury’s has dropped the rate of its higher borrowing option by a considerable 1.3 percentage points, now at 3.6 per cent down from 5.8 per cent when taken out over a maximum 36 month repayment term. 

Sub 4.0 per cent rates weren’t unusual in the higher borrowing category, but they were ‘existing customer only’ loans. Since the beginning of July, both Sainsbury’s and Cahoot (loans provided by Santander) have re-priced loan rates to 3.6 per cent, opening up a more competitive loans market. Overall, Ratesetter has the lowest loan rate in this category at 3.5 per cent but comes with a £51 borrowing fee.

Applying before base rates rises

Kevin Mountford, head of banking at MoneySuperMarket said: “Lenders have slashed personal loan rates in recent years, and we’re still continuing to see them fall now, with a notable drop in the average rate over the last month. Anyone thinking about borrowing money should take advantage of these low rates now, as there is no guarantee on how long they will remain at this level, especially with recent speculation of a rise in Bank of England Base Rate.

“It’s especially interesting to see such drastic rate reductions in the larger loans bracket where rates now mirror those on offer in the medium loan size category. Banks are willing and able to lend money at the moment and the reduction in these larger loan rates for those borrowing between £15,001 and £19,999 is a good indicator that lenders are looking to entice those looking for a large level of borrowing, who in the past may have opted to remortgage for those amounts due to the lower rates on offer. They now have the choice to do this without the lengthy process of obtaining a mortgage which is secured on their property.”

With these low rates in mind, MoneySuperMarket also analysed loan enquiries through the site to find out the reasons why consumers were borrowing money. Property was the most common purpose, with 16 per cent of enquiries based on this area, such as the deposit for a new home, stamp duty and legal fees, and making improvements to a current residence. This was followed by business reasons, which made up 10 per cent of enquiries, while education and transport made up nine per cent respectively.

Avoiding unnecessary searches on your credit file

Kevin Mountford continued: “Customers can use our smart search tool, which will show you the loans that you are likely to be accepted for without leaving a footprint on your credit file. It’s still important to assess all options and ensure you get the most suitable deal for your needs. Many of the low rates on offer are only available to those with excellent credit histories, whilethose with a less than perfect credit score continue to be charged significantly higher rates of interest, with up to 50 per cent who apply being offered a higher rate than that advertised. Therefore, checking the status of your credit history first will ensure that your application isn’t declined, a move that will only cause more damage to your credit score.