Personal loan rates take a battering

Lisa Taylor, analyst at Moneyfacts.co.uk, comments: “This week loan rates have taken a real battering, with a total of nine providers hiking interest rates on some tiers by up to 4%.

“The last nine months has seen a steady increase in the rates available for unsecured personal loans, only four months ago sub six percent rates were available, whereas today you would be hard pushed to get your hands on a rate of less than 6.9%.

“With increasing uncertainty in the financial markets, rising levels of bad debt and a year of interest rate rises putting pressure on our disposable incomes, its comes as no surprise to see lenders increasing their lending margins in what has become a far more risky environment to do business.

“If you are looking for a personal loan, make sure you take some time to shop around for the best deal. Choose the wrong loan and you could be paying more than twice the amount you need to in interest. The difference between the cheapest and most expensive loan will cost you £14.15 per month, or more than £500 over the three year term of the loan.

“Don’t assume a personal loan is always the best method for refinancing or making purchases on credit. There are still some great 0% deals to be found in the credit card market, with up to 15 months’ 0% on purchases and balance transfers, but these only make financial sense if you are looking for short-term borrowing. Alternatively you could look at a life of balance deal such as Citi platinum offering 4.9% APR until the balance is repaid. The golden rule for any form of debt consolidation is to cancel, close and cut up your existing forms of credit. Keeping existing credit cards and overdraft limits can prove to be too big a temptation, and a few months down the line you could be back to square one.”