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Personal loan rates have been steadily falling in recent years, offering borrowers the chance to secure a decent cash injection with minimal interest. However, it looks as though there's becoming a definite shift in the market, as although rates for higher amounts are continuing to fall, they're starting to edge up for small loans.
That's according to figures from the latest Moneyfacts Treasury Report, which analyses the UK personal finance market (including unsecured personal loans, credit cards and overdrafts). The report shows that unsecured personal loan rates are rising for smaller loan amounts, with the average rate for loans of £3,000 over three years breaching 15% for the first time since last summer.
As the table below shows, the average loan rate at this level now stands at 15.2% APR, the highest seen since August 2016, when it stood at 15.3% APR. It also marks an increase of 0.2% on a quarterly basis, and signals a definite change in direction.
In contrast, it seems that some lenders are concentrating their efforts on repricing much larger loans, with particular attention given to the highest tier of £25,000: a loan of this amount over five years now has an average rate of 4.9%, down from 5.5% at the end of 2016 and becoming the lowest on record.
Remember that this is just an average, too; it's possible to secure far lower rates than this if you've got a decent credit rating, so make sure to check your score with a credit reference agency before using our personal loan calculator to see how low your repayments could be.
This improvement isn't only confined to the highest loan amount, either, as over the last quarter, all average rates on loans tiers of £7,500 and above have fallen below 5%. This is a clear sign that lenders are keen to attract new business on larger loans, and means it's a great time for borrowers to take advantage!
|Average loan rate at £3,000 over 3 years||14.8%||14.9%||15.2%||15.2%|
|Average loan rate at £10,000 over 5 years||4.9%||4.6%||4.5%||4.5%|
|Average loan rate at £25,000 over 5 years||5.5%||5.2%||5.00%||4.9%|
"It's not too surprising to see unsecured personal loan rates fall to new lows for most tiers, but at the same time, some lenders are compensating for larger loan rate cuts by raising interest rates on smaller loans," said Rachel Springall, finance expert at Moneyfacts.
This could be disappointing news to borrowers who feel a small unsecured personal loan is the ideal solution, she said, particularly for those looking to consolidate their debts or make a large purchase. This is because personal loans offer borrowers a fixed repayment plan and a clear route out of debt, unlike credit cards, where the temptation to adjust repayments could be too easy.
After all, many may have the best intentions to repay the full credit card balance by the time a promotional 0% deal ends, but could end up making only the minimum repayments instead. This is why it's so important to be disciplined if you're seeking a 0% deal, but if you manage to stick to a repayment plan, it could still be beneficial.
Conversely, those seeking a slightly higher loan could be more than happy with the latest turn of events, with the environment having improved dramatically in recent years.
"If we were to travel back 10 years, the lowest rate on the £25,000 tier was 5.9%," said Rachel. "Today couldn't be more different, as lenders will now offer loans of up to £25,000 with rates as low as 3.0%, which could be beneficial for borrowers in need of funds for home improvements or debt consolidation.
"The fall in loan rates for the higher tiers may well be a trend set to continue throughout 2017, particularly if lenders are attempting to leap-frog competition. However, as most loan rates presently sit at record lows, lenders may now price in cuts much less frequently, or may only be able to hold a market-leading position for a short period.
"Therefore, borrowers may be wise not to wait around too long if they are thinking about applying for a competitive unsecured personal loan."
As Rachel said, you'll probably want to be quick about it if you're to stand the best possible chance of securing a top personal loan rate, so don't delay – if you need a cash injection for debt consolidation, home improvements or anything else, use our personal loan calculator to get started.
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