People hoping to take out a £7,500 personal loan typically face their highest interest rates in six years, the figures show.
According to Moneyfacts, rates have risen by several tiers over the past three months after years of flat rates, thanks to an increase in the base rate.
The £7,500 to £10,000 level with five-year repayments has seen many providers increase rates, including high street banks.
The average rate on a £7,500 loan is now 5.2 per cent, up 0.8 percentage point over the past three months. It is now at its highest level since September 2016.
Those looking for a personal loan between £7,500 and £10,000 will see average rates rise by 0.8 percentage points over the last 3 months
A personal loan is a type of loan that can be used to pay for a variety of things, including major purchases like a car or home improvements.
They are typically repaid monthly and have a fixed or variable interest rate with maturities ranging from a few months to seven years.
They are generally unsecured, which means you don’t need to use collateral to get approved.
Although rates seem to be rising, the best deals on the market remain relatively cheap.
For example, someone borrowing between £7,500 and £15,000 could potentially pay as little as 2.8 per cent interest. However, it may not last long.
Rachel Springall, finance expert at Moneyfacts, said: “This level (£7,500) is widely used by many loan providers as a representative APR level and traditionally lenders have tried to remain competitive.
“However, during a cost-of-living crisis, the potential risk of default for borrowers increases, so lenders have moved to reprice in response.
“A few lenders charging less than 3 percent remain in that space, but whether that will continue in the coming weeks is uncertain.”
|Average unsecured personal loan rate (annual)||June 2020||June 2021||March 2022||May 2022||June 2022|
|£3,000 over three years||14.8%||14.4%||14.3%||14.1%||14.3%|
|£5,000 over three years||7.4%||7.1%||7%||7.1%||7.4%|
|£7,500 over five years||4.5%||4.4%||4.4%||4.6%||5.2%|
|£10,000 over five years||4.5%||4.4%||4.4%||4.6%||5.2%|
What are the best deals?
The rate you pay for a personal loan will depend on how much you need to borrow and your credit history.
Those borrowing less than £5,000 will enjoy the most expensive rates, while those borrowing between £7,500 and £15,000 will have access to the cheapest deals.
For example, for those looking to borrow between £5,000 and £7,499, the cheapest deal is currently offered by M&S Bank at 3.7 per cent.
This means that someone borrowing £5,000 with the intention of repaying it over three years can expect to pay back a total of £5,285 over a 36-month period.
For those looking for a personal loan between £5,000 and £15,000, M&S Bank is again the top choice, according to Moneyfacts, offering a rate of 2.8 per cent.
A £15,000 personal loan from M&S Bank, repayable over five years, would cost the borrower £1,077 in interest, or £16,077 at the end of the 60-month period.
Rates are still as low as £25,000 Post Office Money offers a market-leading rate of 2.9 per cent to those who need to borrow between £15,001 and £25,000.
£25,000 paid monthly over five years would earn an extra £1,861 in interest. In other words, this would mean repaying a total of £26,861 over a 60-month period, which is
It’s worth noting that, as with other forms of lending, such as mortgages, personal loan lenders reserve the lowest interest rates for people with a healthy credit history.
A credit report shows a list of a person’s credit accounts, such as bank accounts, credit cards, utilities, and mortgages. It will also display their repayment history, including overdue or missed payments.
A credit score is a three-digit number that reflects this information and allows lenders to determine how reliable you are when it comes to paying back money.
If your credit card and score aren’t great, you may not have access to these best rates.
Most lenders will let you see if you qualify for a loan with a soft credit check without affecting your score.
To compare the best personal loan deals on the market, you should use a comparison site.
Personal loan lenders reserve the lowest interest rates for people with the lowest credit scores.
Is it wise to buy it?
While it’s possible to get a personal loan to buy furniture, pay for a wedding or go on a vacation of a lifetime, it’s always wise to save for such expenses.
However, there may be good reasons to take out a personal loan.
Experian credit score bands
Very Bad: 0 – 560
Poor: 561 – 720
Fair: 721 – 880
Good: 881 – 960
Excellent: 961 – 999
For example, you may want to consolidate expensive credit card debt or pay for emergency property repairs that you wouldn’t be able to afford with your current savings.
Home renovations or one-off life events such as a wedding or funeral can also justify taking out a personal loan.
With the low cost of living, you should be confident that you will be able to keep up with your monthly payments.
Failure to do so will not only mean additional financial stress, but it can negatively affect your credit score and credit report, which in turn can hinder your chances of borrowing in the future, whether it’s for a credit card, loan or mortgages.
Springall adds: “Anyone comparing deals, whether it’s debt consolidation with a loan or for another reason, would be wise to check their credit score before applying with something like Experian.
“The coming months are uncertain amid the rising cost of living, but it would be wise to seek advice from a debt advice charity if borrowers are struggling or fear they may not be able to keep up with their repayments.”
Ten tips to improve your ranking
1. Register in the list of voters at your current address
2. Use your credit card responsibly and always try to keep a good amount of credit available
3. Check your credit report regularly and ask for any errors to be corrected
4. Never withdraw cash from your credit card
5. Limit applications for a new loan
6. If you have bad credit, stop applying for more
7. If you don’t have a credit card, get one: But make sure you pay it off every month
8. Don’t miss payments
9. Let your credit history mature
10. Do not keep unused cards
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