The credit crunch. Global economic slowdown. You must be sick to death of hearing those phrases. The general downturn seems to have affected everything from mortgage prices to energy bills, the cost of food and even petrol costs.
What many people haven’t realised is that personal loan rates have also been affected by le crunch.
It wasn’t so long ago that loans were cheap as chips, on offer at rates well under 6% APR.
But as banks have tightened their belts, rates have increased and the better deals are harder (though not impossible) to find. Which is doubly bad news as the effect of the economic slowdown is that we’re all feeling the pinch, classicly a time when many people would look to borrow money to see them through hard times.
Cost of loans
So what’s the real difference in cost when it comes down to it?
Well, a £7,500 personal loan at a rate of 5.6% repaid over five years – the sort of deal that was fairly standard a few years ago – would have cost you £143.61 per month with a total repaid of £8,616.
Look again at the best deals now, and things are slightly different. If you’ve got a squeaky clean credit rating you can still get a deal around 7.5% APR, which would mean your repayments on the same loan above would come in at £150.28 per month, or £9,017 over the lifetime of the loan – an extra £401 in total.
But if your credit rating is less than good, you will do well to get a loan at rates under 17.9%. At that rate a £7,500 loan over five years will cost you £11,402.58 in total and some £190 a month.
Value for money
Of course, there are still competitive deals out there but the most important thing with personal loans is not to assume you will get the best rate advertised. Every loan is dependent on individual’s circumstances, so if you’re in any doubt about your credit rating, check it out online so that you can make a fairer assumption about the rate you can achieve.
Don’t forget that many personal loans still represent better value than credit card borrowing. Standard borrowing rates on credit cards are around 16% APR – that’s over double the charge of some of the better personal loans on the market.
So if you find yourself borrowing heavily on credit cards – and your zero per cent deal has expired – then perhaps a loan might be a good way to put your borrowing in one place. Consolidating your debts can reduce your monthly repayments considerably and give you greater control over your finances.
Try our debt consolidation calcuator to see how much you could save – or compare personal loans to check out the best deals.