Two more lenders drop out of the sub-6% personal loan market

Nick White, Director of Financial Services at independent price comparison and switching website uSwitch.com comments on two more lenders increasing APR’s and dropping out of the sub-6% personal loan market Northern Rock’s increase from 5.8% APR to 6.1% APR and Liverpool Victoria from 5.9% to 6.4%):

“It’s been a turbulent week in the sub-6% personal loans market with two major providers , Northern Rock and Liverpool Victoria, increasing APR’s and subsequently dropping out of the sub-6% APR market. Another provider, Moneyback Bank, has also implemented an increase but remains sub-6% APR by increasing from 5.7% APR to 5.9% APR. On a more positive note, there has been a new entrant to the market - Asda has launched a 5.9% APR loan, which is available until the 15 February 2007.

This strongly supports our prediction last November that the sub-6% APR personal loan era would soon come to an end. Our analysis of the market shows that in January 2006 there were eight loan providers in the sub-6% market, but a year on, this has halved to just four and the average loan rate across the industry has increased from 10.61% to 10.98%.

“With inflation currently at the highest level in the UK for 15 years, interest rates at their highest since mid-2001 and another base rate increase anticipated in the very near future, it is likely that personal loan rates will start creeping up across the board, possibly resulting in the death of the sub-6% APR loan market over the next few months.

“MoneyBack Bank and Northern Bank are the only two providers to consistently remain in the sub-6% APR market, and it will be interesting to see how long they retain their positions.

“While there are still providers offering sub-6% APR personal loan rates, consumers struggling to finance and manage their debts should consider a debt consolidation loan. This can help reduce monthly payments and is a disciplined way to pay off debt over a fixed period at a fixed rate of interest.

“A consumer with an average credit card balance which is around £3,000, paying the average purchase APR of 17.02%, would pay a total of £5,480.23 in interest if they made the minimum payment required each month. To repay this debt in full, it would take the consumer 37 years and 2 months. By transferring the £3,000 credit card balance to a 5.9% APR Moneyback Bank personal loan, the consmer would only pay £3,462.00 over a five year term with fixed monthly repayments of £57.50. This would make a total saving of £1,491.17 over five years.

“While the personal loans market continues to offer some very competitive deals, consumers that are planning to take out a personal loan in the near future should act sooner rather than later in order to enjoy a sub-6% APR before they disappear completely. Consumers should be aware that competitive loan rates are always subject to a credit scoring process and are not guaranteed rates.”