Personal loans have become increasingly competitive over the last few years, with considerable rate cuts resulting in some of the lowest rates the market has ever seen. However, it now appears that some providers can no longer sustain such low prices, so unfortunately for borrowers, rates are once again on the rise.
Our latest data shows that most rate rises have been concentrated on the £7,500 loan tier, which is typically used as the advertised tier for most personal loans, and as such often boasts the lowest prices. The table below highlights the changes in more detail, and while the rises are small, it could signal the start of a gradual upward trend.
In slightly better news, the rises have not yet been introduced to the lowest deals on the market, so Ikano Bank, which offers a rate of 3.2% APR for loans of £7,500 over five years, still maintains the lowest rate ever recorded. Nonetheless, the table clearly shows that average rates are beginning to increase, and as Moneyfacts' Rachel Springall says, it could be the start of something:
"The personal loan market has had its fair share of rate cuts over the years, but with average loan rates rising for the first time this year, we may be witnessing the start of a slow climb in rates away from their record lows," she said.
"Anyone thinking of consolidating their debts or taking on a new loan will still find some great deals in the Best Buys, but customers should never assume that the rates currently available will stay this low forever. For this reason, they may want to move fast if they want to get a highly competitive deal."
However, that's not to say there aren't other options. This is particularly the case if you're looking to borrow a small sum of money, as in this instance, you may be better off taking out a credit card with an interest-free term.
For example, a highly competitive personal loan of £3,000 over three years with a rate of 7.4% APR would cost £342.60 in interest, while the same amount borrowed from the market-leading 40-month interest-free balance transfer credit card would cost just £77.70 in fees, saving an impressive £264.90. As long as you pay off the credit card before the interest-free deal ends to ensure you don't pay unnecessary interest, it could be a great solution, but it all comes down to your personal requirements.
Compare the top 0% interest credit cards to see if they could be an option, or if you're looking to fund a more expensive purchase, you can still find some great deals on personal loans. Check out our best buys to get started, and see if you can find a low-cost deal before rates creep up any further.
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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