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Loan rates fall to significant lows

Loan rates fall to significant lows

Category: Loans

Updated: 26/01/2016
First Published: 26/01/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Thinking of getting a loan? Then you're picking a great time to do it: our latest figures show that personal loans have seen considerable rate cuts since the start of the year resulting in some of the lowest rates ever seen, so now could be a great time to get on board.

Growing competition

Providers have been competing against each other for a place in our coveted best buy charts, with Yorkshire and Clydesdale Bank most noticeably slashing rates by as much as 2.0%. Lenders are even cutting rates within days of each other in order to beat their rivals to the top spot, so the desire to compete is clear.

In fact, since the start of January, 13 providers have already cut their loan rates, including AA, HSBC, Nationwide, NatWest, RBS, Sainsbury's Bank, Santander, Tesco Bank and TSB. A small handful of cuts were for loans of £5,000, but the vast majority focused on the advertised tier of £7,500 to £15,000 – pushing average rates for mid-tier borrowing to significant lows. Currently, HSBC and M&S Bank offer a rate of 3.3% for loans of £7,500 over five years, the lowest rate ever recorded.

Individual rates may be falling dramatically, but average rates have dropped notably, too; check out the table below to see just how far average rates have fallen in recent years:

Jan-11 Jan-14 Jan-15 Jan-16
Average loan APR £5K over 3 years (%) 12.7 10.3 8.3 7.8
Average loan APR £7.5K over 5 years (%) 10.1 6.7 5.9 5.7
Average loan APR £10K over 5 years (%) 9.8 6.5 5.8 5.6
Average loan APR £15K over 5 years (%) 9.9 7.0 6.2 5.8

"There is now a full-on war between providers who are slashing their loan rates to attract new borrowers," said Rachel Springall, finance expert at Moneyfacts. "Starting a new year is the perfect time for consumers to re-visit their finances and see whether using a competitive loan to consolidate more pricey debts can be a money saver."

Don't forget about the alternatives

Using a personal loan to get on top of debts can be a cost-effective option, but as Rachel points out, the best rates on offer are for borrowers who need £5,000 or more. Advertised rates (APRs) on loans start from £7,500 which may be much more than some people need, plus only 51% of successful applicants may get the advertised rates, so customers should never assume that they are guaranteed the best deals.

It's for this reason that some people may need to look to alternatives, as if you borrowed slightly less through a personal loan, you may end up paying additional, and unnecessary, interest.

For example, borrowing £3,000 over three years on a rate of 7.4% would result in total interest of £342.60 being charged, which would leave borrowers more than £250 out of pocket than if they opted for a 40-month 0% balance transfer card with a 2.95% fee (which would set borrowers back £88.50 in interest payments).

As long as customers make sure to pay off the credit card balance before interest applies, it's clear to see how there could be hundreds of pounds to be saved with this method – but only for smaller levels of borrowing, as if you need a larger amount, opting for a personal loan could still be the most cost-effective solution.

However, you'll need to act fast if you want to take advantage! "Similar to a January sale, these low rates may not stay around forever," concluded Rachel, "so anyone considering a loan would be wise to check their credit report and see if they can get a good deal before rates rise."

What next?

Review your credit report with a credit check provider such as Experian

Compare personal loan rates

Need to clear a credit card debt? 0% balance transfer cards could be for you

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.