Do you turn to credit to help make ends meet? It's an increasingly popular solution, but it may not be the best one, because those credit agreements can quickly add up – and monthly repayments could start getting out of control as a result. So why not consolidate? Turning debts into a single, more affordable monthly payment could make a huge difference to your finances, and with loan rates so low, it could be a great time to get on board.
According to our latest research, the ongoing cuts to unsecured personal loan pricing mean that customers who switch or take out a new loan today can save hundreds of pounds over the fixed term of their agreement. On average, well-known banks now offer loans that are £396 a year cheaper in interest payments for a £7,500 loan over a five-year period compared with 2013, while loans from challenger brands are £222 cheaper for the same loan agreement.
This is largely thanks to intense competition between providers. Quite simply, banks want you to come to them for your borrowing needs as they'll earn interest from you, and they're willing to lower their rates in order to secure that kind of business. So why not take advantage? Your monthly repayments could be far lower by consolidating than by paying off different credit cards, for example, and you may even want to consider taking out a new low-rate loan to replace a current one.
Take a look at the table below to see just how low rates are going:
As you can see, you could easily pay hundreds of pounds less today than you would have done with the same loan a few years ago, so if your credit commitments are building up, it could be time to consolidate.
"Many consumers still rely on credit to manage their outgoings each month, but they could be making the mistake of turning to some of the most expensive sources, such as overdrafts, high interest credit cards or even payday loans," said Rachel Springall, finance expert at Moneyfacts. "However, by taking time to review their finances, consumers could consolidate their debts into a manageable monthly payment with an unsecured personal loan.
"The loan price war has made this option for managing debt even more competitive, and will no doubt grab the attention of prospective borrowers. Revisiting loan agreements and weighing up whether further debt consolidation is required is vital to prevent borrowers paying unnecessary interest, something that can also stop them from applying for more credit elsewhere or using their overdraft excessively.
"While their current lender may be a logical first port of call for many borrowers who are looking for a better loan rate, consumers must never blindly agree to new terms, especially if it's for an unnecessary loan extension. Instead, the simplest way to tell whether you will be on a better deal is to compare the total cost of different loans side by side, and our loan calculator can be a great place to get that kind of information."
It's important to remember that not all customers will be given the lowest rates advertised – providers are only required to give the advertised APR to 51% of applicants – and some will be offered a higher rate given their credit history. But even so, the changed cost of loan pricing today compared with that of just two years ago means that borrowers could still save money by switching their loan, even if they don't get the lowest rate on the market (subject to early payment charges), and it could leave them hundreds of pounds better off. Is it time to see if you could benefit?
Compare personal loan rates
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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