Personal loan rates starting to fall
Figures from moneysupermarket.com show that personal loan rates are starting to fall, with the average rate of the top ten loan deals falling to 8.35 per cent - the lowest since the Bank of England cut the base rate to 0.5 per cent last March, although this is still at a five year high.
Despite the Bank of England repeatedly cutting base rate in 2008 and the beginning of 2009, leading to reductions in mortgage and savings rates, banks and building societies have responded differently to personal loans rates, effectively decoupling loan rates from the Base Rate.
Recent announced rate cuts from lenders such as Nationwide, Alliance & Leicester and Halifax, has meant the average rate for a loan of £7,500 is now the lowest it has been since the Base Rate hit 0.5 per cent. However, despite reduction in rates, many lenders are still restricting personal loans to existing current account customers.
Tim Moss, head of loans and debt at moneysupermarket.com, said; "Perhaps the tide is turning. It has been a long time since there was much good news to talk about in the loans market, but the recent moves suggest lenders are willing to open their purse strings just a little wider.
"Whilst other products linked to bank lending have maintained some correlation with the Base Rate, personal loans have not, and consumers have had to endure artificially high rates for quite some time.
"Looking at average personal loan rates over the last few years really demonstrates the extent to which lenders have been unwilling to take on any risk whatsoever. In 2006 the average rate of the top ten loan products available was at 5.8 per cent, and yet now we are pleased to see it come down to 8.35 per cent. In the same period the Base Rate has fallen by four per cent, meaning the top lenders have increased their profit margins by an eye watering 6.55 per cent.
"For those in need of credit for one reason or another, it might be time to have a look at personal loans again. Though potential borrowers should be aware they are likely to get a better deal from a bank they already have products with."