Time to snap up a low-rate loan! - Loans - News | moneyfacts.co.uk


Moneyfacts.co.uk News brings you the latest financial & economic news & reviews of the best products in the UK by our team of money experts.

Time to snap up a low-rate loan!

Time to snap up a low-rate loan!

Category: Loans

Updated: 06/05/2015
First Published: 06/05/2015

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 It is now over 6 months old so the content may be out of date.

It's a great time to be a borrower at the moment. Thanks to intense competition in the sector, not to mention low inflation, low base rate and the Funding for Lending Scheme boosting the availability of cheap loans, rates have never been lower – so it's time to snap up a deal!

Lending figures on the rise

According to figures from the Bank of England, a growing number of people are doing just that. Lending figures have been on the rise for several months, and have shown sharp improvement since the beginning of the year – consumer credit increased by a whopping £1.2 billion in March, which means that the level of consumer credit has risen by 7% on a quarterly basis and 6.9% since this time last year.

Breaking it down further, we can see that credit card lending increased by £0.2 billion in March while other loans and advances increased by £1.1 billion, showing how quickly consumers are snapping up this form of finance. Analysis suggests that lower rates have encouraged borrowers to re-consider their credit commitments, perhaps to consolidate their existing debts with a personal loan or to benefit from 0% interest deals on credit cards, but there could well be more to it than that.

Economic conditions have been improving of late, and this could have started to filter through into people's household finances which would, in turn, boost confidence in their spending power. Rising confidence means consumers will be more comfortable taking on more credit, hence the rise in lending figures. Is it time to join them?

Make the most of credit

If you're considering credit, now's a great time to make the most of the low-rate environment. Providers are actively competing for your business and are reducing personal loan rates to record levels, and that's before we get to the likes of 0% interest deals and cashback credit cards.

"We are living in a borrower's market, which means that there is an abundance of interest-free card deals and low loan rates available," said Rachel Springall, finance expert at Moneyfacts. "With providers fighting to be top of the market, there doesn't seem to be any reason why we won't continue to see more extensive interest-free deals and rate reductions in the future."

The table below highlights how far personal loan rates have come:

Average Rates - Unsecured Personal Loans
May-13 May-14 Feb-15 May-15
Average Loan APR £5K, over 3 years 11.6 9.1 8.1 8.4
Average Loan APR £7.5K, over 5 years 7 6.3 5.4 5.6
Source: www.moneyfacts.co.uk Compiled: 1.5.15

As you can see, competition is fierce, particularly in the mid-tier sector. In February, average rates were at the lowest point seen since Moneyfacts began recording this measure in 2007, and although they've increased slightly since then, there are still some fantastic deals to be found.

But what about credit cards? Providers have been competing for your business here, too, and 0% deals have been the battleground. In the last few months we've seen several providers increase the length of their 0% balance transfer and 0% purchase terms in an attempt to secure the top spot, and that means it's a great time for borrowers to consider their options.

"Customers will find it much cheaper to borrower smaller amounts by using a credit card," said Rachel, "because rates are typically lower than for a loan of the same amount. Conversely, the most cost-effective choice for larger purchases is a loan, particularly the advertised tier of £7,500 where providers concentrate on their rate reductions to get the spotlight.

"However, borrowers need to keep in mind that advertised APRs are only offered to 51% of successful applicants, so to be in with a chance of securing the best deals, they'd be wise to check that their credit history is in good shape before applying."

What next?

Is it time to make the most of things? If you're seeking to consolidate your debts or want to fund that big ticket purchase, use our loan calculator to see the kind of rates on offer. Alternatively, for smaller borrowing amounts, check out our credit card best buys to find the perfect deal 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.