Loan rates trend higher ahead of Christmas season
The report, which looks across unsecured personal loans, credit cards and overdrafts, showed the average unsecured personal loan rates have risen for all types of borrowers. Loans of £7,500 are at their highest rate in two years.
However, the rises are relatively small and loan rates remain lower in all cases than in December 2016. Loans of £5000 over three years have come down from 7.5% to 6.8%, while those over £25,000 over five years have fallen from 5.5% to 5%.
Rachel Springall, finance expert at Moneyfacts, said that record-low rates of unsecured personal loans are likely to be a thing of the past, as interest rates move higher and banks respond accordingly: “It is entirely probable that the risk of economic uncertainties has put pressure on lenders to rethink their pricing during the past quarter. Loan rates were pushed to their lowest levels in 2017, so it was only a matter of time before external factors crept in to stir up the market.£
She added that debt consolidation is commonplace around Christmas and applicants need to remember they may not get the publicised rate: “It is worth remembering that only 51% of successful applicants only need to be offered the advertised APR of an unsecured personal loan , so the rate seen at first glance right now is not guaranteed to be the same as the rate offered after the application process, nor the rate available moving into 2019.
Springall said that loan rates may also be impacted by economic conditions: “During the credit crash, numerous lenders withdrew entirely from the personal loan market, and interest rates rose for many months on end. In December 2007 there were 53 lenders in the market, this had dropped to just 32 by December 2009. This sharp two-year decline clearly demonstrates how economic pressures can directly affect the market.
“While rates are on the rise, there are still some good deals to be had within the Best Buys, so borrowers thinking about consolidating their debts shouldn’t be too disheartened. For example, cahoot currently offers the lowest loan rate of 2.8% on £7,500 borrowing over five years, but there is no telling how soon the lowest deals could breach 3% going into 2019.”