Searching for value

In recent months we’ve seen the Bank of England’s base rate drop sharply from 5.5% at the start of the year to 5% now but despite this, average unsecured loan rates have crept steadily upwards. If you’re planning on consolidating a debt or borrowing to invest in your property then it’s important to be aware of how rates are changing and where the best deals can still be found.

Blast from the past

Back in the summer of 2007 unsecured lending rates started at around 6.5% and for those with perfect credit records they could expect deals such as 5.7% on £10,000 from Masterloan.

Today however average loan rates start at around 10.5% for those with a fair credit rating, meaning that monthly repayments are coming in significantly more expensive.

Making your mind up

Lenders are short on cash and we’re having to pay for this with higher rates. If you are seriously considering taking out a loan then it’s important to factor in whether you can cope with this additional cost.

MoneyExpert’s own research has discovered that over 900,000 have missed a loan repayment in the passed six months.

Missing loan repayments is a bad idea while credit agencies will note the details and assign you a black mark meaning you may struggle to get credit in the future.

Paying four per cent more for your loan may not sound like a great deal but if your finances are already being stretched by mortgage repayments, credit card bills or the generally high cost of living then saddling yourself with additional debt may not be a great idea.

The credit cycle

While there’s no immediate end in sight for the current credit drought the availability of money is something that has traditionally gone in cycles. Back in 2003 interest rates were sat at a mere 3.5% meaning that loans could be taken at rates of just 4.5 to 5%.

Similar rates may not be on the horizon just yet and the advice is that if you’re not sure whether you can meet the monthly repayments comfortably then don’t take the loan.

Rate guide

In the meantime so long as your credit rating is strong you can expect rates of around 7.2% on £10,000 with Moneyback Bank but if you’re record isn’t so strong then the chances are you’ll be looking at around 10.5% with Paragon Finance. If your record is poor then a loan could be looking expensive at 11.4% with Blemain.

It’s worth remembering that most of the best deals are to be found online. Not only will you get better deals but you’ll be better able to compare the whole market.

Weighing up the options

It’s important to weigh up your short term needs against the repayment process. If for example you are investing the money in improvements to your property then it is possible the loan will pay for itself in the value it adds. Be cautious and remember that the health of your credit record is important for future financial transactions and if you are going to press on take time to find a loan with as low an APR as possible.

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