Tim Moss, moneysupermarket.com’s head of loans, said; “Perhaps the tide is turning. It has been a long time since there was much good news to talk about in the loans market but the recent moves suggest lenders are willing to open their purse strings just a little wider.”
Artificially high rates
The base rate has been at a historic low of 0.50% since March last year, yet the cost of personal loans remained stubbornly high.
Tim explained: “Whilst other products linked to bank lending have maintained some correlation with the base rate, personal loans have not, and consumers have had to endure artificially high rates for quite some time.
“Looking at average personal loan rates over the last few years really demonstrates the extent to which lenders have been unwilling to take on any risk whatsoever.
“In 2006 the average rate of the top ten loan products available was at 5.80% and yet now we are pleased to see it come down to 8.35%. In the same period the base rate has fallen by 4.00%, meaning the top lenders have increased their profit margins by an eye watering 6.55%.”
Which lenders dropped their rates?
Nationwide, Sainsbury’s, Alliance & Leicester, Tesco and Halifax have all cut their rates, so which are offering the best loan deals?
The cost of a Nationwide Personal Loan has fallen from 7.90% APR to 7.60%, making it a market-leading deal. Unfortunately, it’s only available to existing FlexAccount customers.
If you borrowed £7,500 over five years, you’d pay £149.74 a month and a total of £8,984 in full.
Alliance & Leicester is offering a typical annual percentage rate (APR) of 7.80%, meaning you’d pay £150.41 a month on a five-year £7,500 loan. In total, this would cost you £9,025.
Sainsbury’s is another lender that cut its rates, although you’ll need a Nectar card to qualify for its typical APR of 7.90%. It’s very easy to pick one of these cards up and they can be applied for online or in store.
If you qualified for that rate and borrowed £7,500 over five years, you’d pay back a total of £9,044 at £150.74 a month.
Of course, not everyone will qualify for those market-leading deals, as lenders have become far pickier about who they’ll lend to.
You may find you’re more likely to qualify for a higher APR, like the moneysupermarket.com exclusive offer from Aspire Finance. Its typical APR is 16.7% but some customers will be offered a rate of just 13.90%.
That would mean you’d repay a total of £10,259 on a £7,500 loan over five years. Your monthly repayments would be just under £171.
Will you qualify?
Of course, whether or not you qualify for a lender’s headline rate depends on your credit score, so if you have a less-than-perfect credit history, you may have to resign yourself to higher costs.
It’s worth getting hold of a copy of your credit score to see whether you’re likely to be considered for a market-leading rate and only applying for a realistic product.
You may also find you’d get a better rate from your own bank as lenders are often more willing to extend credit to people they have an existing relationship with.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.