Are Personal Loans Rates Going Up, Or Is This A False Illusion?
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The last few weeks have seen some bizarre action in the money markets, usually its the central banks that decide the course of interest rate changes, but now its been the commercial banks themselves that have steered rates higher. We are all now aware of what has occured with Northern Rock but why did it happen.
The story starts in the USA where a booming housing market, mortgage competition and easy lending crieria caused huge problems for a number of well known banks. These banks lent heavily to ’sub prime’ clients (eseentially anyone who doesn’t have an excellent credit score), with rising interests these people have found it very difficult to keep up their mortgage payments and in many cases they began to default. The way that this debt was handled by the banks meant that there was literally no value to it and the banks themselves have ended up with colosall losses.
The losses and general sense of unease spread across the Atlantic to the UK where interbank interest rates, the rates at which banks lend to each other, began to rise, even though the Bank of England base rate was static. Northern Rock was a casualty of this because their business model is based on borrowing from other banks instead of using customer savings like other banks. So where does this all lead?
Well a few banks have withdrawn their lowest personal loans rates for the moment, mainly because they were offers which were expiring or were too low given the current situation, a few others raised their rates by about 0.5% but two days ago Barclays actually cut their rates for some personal loans. Now the situation is stabilising it looks as though the next move in interest rates from the Bank Of England will be down which will definetly ease pressure in the financial system and help borrowers.
