Loan rates beginning to fall
The average rates on the top 10 unsecured personal loans has started to fall again, after rising to record highs in the first half of 2010, according to analysis from moneysupermarket.com. Despite the Bank of England cutting Base Rate to a record low in March 2009, which led to reductions in mortgage and savings rates, banks and building societies took the opportunity to decouple unsecured loans from Base Rate changes, leading to the rapid increase in the costs of borrowing, particularly for consumers looking for a loan below £5,000.
Recent rate cuts from some of the leading loan providers such as Nationwide, Tesco and Sainsbury's Finance has meant the average rate for a loan of £5,000 is now the lowest it has been for sixteen months. From the peak of 10.77 per cent in April this year, we have already seen a 0.58 per cent drop, showing how lenders are beginning to find renewed appetite in attracting new borrowers. The average loan rate for a £15,000 loan tells a similar story, showing a drop of 0.3 per cent since April of this year. Unfortunately those borrowers looking for £3,000 are still paying more for their loans than they did in April 2009, although the average rates have fallen from an all time high in August.
Tim Moss, head of loans and debt at moneysupermarket.com, said; "The past 18 months have been financially tough for consumers and many are still wary about exposing themselves to credit, fearing they might get turned down for a loan. However, contrary to popular belief, banks want business from consumers and we are seeing providers lowering rates across the board to attract new customers.
"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. We are now seeing some movement from lenders as their appetite to attract new customers increases and this can only be seen as good news for consumers.
"The steady rise in personal loan rates over the last few years really is evidence of providers' unwillingness to take on any risk when lending to consumers. However, as rates begin to drop and competition returns to the market, we can expect to see some more inventive propositions entering the marketplace. Whilst the decision to borrow should never be taken lightly, consumers needing an injection of credit should keep an eye on rates, as personal loans look to be back on the agenda."