The days of personal loans with interest rates below six per cent could be coming to an end – all the best-buy lenders have hiked their rates.
Northern Rock, Moneyback Bank and the AA have all upped their rates from a low of 5.6 per cent as it becomes increasingly difficult for them to make money from such cheap deals.
Moneyback remains the cheapest after increasing its rate from 5.6 per cent to 5.8 per cent. But its Moneyback offer requires customers to take out expensive payment protection insurance. Northern Rock has raised its lowest rate from 5.7 per cent to 5.9 per cent, and the AA from 5.9 per cent to six per cent. The difference in interest payments on a five-year GBP10,000 loan works out at around GBP50.
The cheapest lender now is Barclaycard subsidiary Masterloan, which is priced at 5.7 per cent, while Abbey, which recently withdrew its online bank Cahoot from the lending market, is offering loans from 5.8 per cent.
Competition in the loans market has been cut-throat, forcing rates down. Although the bank rate, which is set by the Bank of England, doesn’t directly affect rates in the personal loan market, any increase tends to filter down.
It could also become more difficult to offer low rates because the Office of Fair Trading is set to clamp down on the mis-selling of payment protection insurance – a lucrative, high-margin product that subsidises loan rates.
Nick White, head of personal finance at uSwitch, said: “Over the coming months it is likely that we will see other lenders follow suit and implement further rises on lending products.
“Six months ago there were 10 providers offering sub six per cent deals, but today there are only seven.”
An alternative to the mainstream loan market could be Zopa, which is an online lending exchange between individuals.
It is possible to pick up loans for below five pre cent if you have an exemplary credit rating, although the rate you receive depends on the level individuals are willing to lend at on a particular day.
