Loans - 6%? What 6%?

New research from financial data provider Moneyfacts suggests that sub 6% personal loans are becoming an endangered species.

Michelle Slade of Moneyfacts notes that although personal loan rates aren't directly impacted by a base rate rise, since the last rate hike in January, Moneyfacts has seen 8 lenders increase their unsecured personal loan rates by as much as 8% for some tiers. Three of these providers also changed the rate tiers available, resulting in two of the loans becoming much more expensive for smaller amounts of borrowing.

At the AA www.theAA.com the £5K - £25K tier with a redemption penalty now charges 6.2% 6%. Without the redemption penalty it has increased from 7% to 7.2%.

At Co-operative Bank meanwhile the £2K - £4950 tier now charges 16.9% 16.3%, while at Eskimo Loans the 1K- £4999 tier levies a 10.9% 9.9% fee and the £5K - £25K tier, 6.9% 6.3%.

Meanwhile, at Goldfish / Morgan Stanley the £1K - £2999 tier previously available up to £4999 is now 15.9% 10.9% and the 3K - £4999 tier 13.9% 10.9%.

Elsewhere, Smile now charges 14.9% 6.9% for the £1.5K - £1950 previously available up to £4950 tier, 9.9% 6.9% for £2K - £2950 and 6.9% 6.6% for £3K - £25K.

Finally, RBS is now charging 19.4% 16.5% for £1K - £3K; 16.4% 15.9% for £3K - £4950; 10.9% 10.4% for £5K - £9950 and 9.9% 9.4% for £10K - £25K.

The research also shows that on a loan of £5K over 3 years, only four providers now offer rates below 6%, with more than 40% of the market charging in excess of 8%, and 16% charging over 10%.

Put another way, with a difference of 14.8% APR, between the most and least competitive rates, shopping around for the best deal is an absolute must. Choosing the wrong deal could be the difference between paying £180 per month or £151 and incurring almost £1,044 extra in interest over the three year term.

So if you are shopping around for a personal loan, first check out other options available to you. Dependent on the loan size and term, other forms of lending such as credit cards, flexible loans or, in some cases and for larger amounts, a further advance on your mortgage, may be more suitable.

Also, always check you're getting the most competitive deal, for both your interest rate and, if applicable, any insurance cover. You will be committing to a long term deal, so making sure you get it right at the start can save you hundreds of pounds in interest.

Moneyfacts says that with the OFT due to review PPI payment protection insurance later this year, if lenders are forced to lower the cost of their PPI cover and revert to a pay as you go type policy rather than single premium, best buy loan interest rates could potentially reach double figures before the end of 2007.

2007-02-07 11:14:38 © Moneyextra.com

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