Personal Loan Rates Go Up 4% – In A Week

October 9th, 2007

LOOKING to find a few extra pounds to fund the festivities? Act now or prepare to fork out on a lot more in interest.

The personal loan market has taken a battering over the past seven days as lenders hike up interest rates.

In a week some lenders have raised rates up to such a level that with one provider, a £5000 loan taken out last Friday will cost you almost £300 more in interest if you arranged it today.

New figures reveal even the most generous lenders have upped their rates – with more to follow as they aim to protect their margins in an increasingly risky market.

Lisa Taylor, analyst at Moneyfacts.co.uk, said: “This week loan rates have taken a battering, with a total of nine providers hiking interest rates on some tiers by up to 4%.

“The last nine months has seen a steady increase in the rates available for unsecured personal loans.

“Only four months ago sub 6% rates were available, whereas today you would be hard pushed to get your hands on a rate of less than 6.9%.

“With increasing uncertainty in the financial markets, rising levels of bad debt and a year of interest rate rises putting pressure on our disposable incomes, its comes as no surprise to see lenders increasing margins in what has become a far more risky environment to do business.”

One of the worst offenders is Bradford and Bingley, which has cranked its unsecured personal loan rate 3.2% to 9.9%.

It means a £5000 loan taken over 36 months would cost another £290.52 over the life of the agreement.

Cheshire and Derbyshire BS has increased its rates on some tiers by 3%, and even troubled Northern Rock has upped the ante.

The North East lender has increased its rates by 0.5%, adding £32.40, or 90p a month to its £5000 loans.

Lisa said: “If you are looking for a personal loan, make sure you shop around for the best deal.”

But don’t assume a personal loan in the current climate is the best way to get credit.

Lisa said: “There are still some great 0% deals in the credit card market, with up to 15 months’ 0% on purchases and balance transfers, but these only make sense for short-term borrowing.”

The advice comes after we told yesterday how a scheme to help vulnerable people avoid falling prey to loan sharks is about to offer its 500th loan.

Non-profit organisation Scotcash, arranged with support of Glasgow City Council for people turned away by banks, has approved 486 loans worth more than £250,000 in seven months.

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Credit Crunch Sends Loan Rates Higher

October 9th, 2007

LONDON (Reuters) – Personal loan rates have increased by up to 4 percent as the credit crunch and rising bad debts take their toll.

At least nine lenders have hiked rates on unsecured personal loans since the start of last week, as lenders respond to volatility in capital markets and higher perceived risk among borrowers.

“With increasing uncertainty in the financial markets, rising levels of bad debt and a year of interest rate rises putting pressure on our disposable incomes, it comes as no surprise to see lenders increasing their lending margins ..,” says Lisa Taylor, an analyst at price comparison service Moneyfacts.co.uk.

Bradford & Bingley (B&B) raised its loan rates by up to 4 percent on Monday, giving a rate of 17.9 percent on loans of between 2,000 and 2,950 pounds.

The Cheshire and Derbyshire building societies lifted theirs by up to 3 percent, also to a maximum of 17.9 percent on small sums borrowed.

Goldfish lifted its loan rates by up to 1 percent from Tuesday, Norwich Union and RAC Financial Services pushed through the same increase a day earlier, while Eskimo Loans increased its rates by 1 percent a week before.

Norwich & Peterborough Building Society raised its rates by up to 0.70 percent last Monday, while Northern Rock — the bank left struggling to stay afloat in the wake of the global credit crunch — has also upped its loan rates, by 0.50 percent.

The increases have added up to 300 pounds to the cost of a 5,000 pound loan taken out over 36 months with B&B, and created a 500 pound gap between the cheapest and most expensive deals, according to Moneyfacts.

The credit squeeze that has sent the cost of money shooting up without the Bank of England lifting a finger has already seen mortgage lenders hike their rates.

Halifax, Britain’s largest lender, and others including Abbey and Standard Life Bank increased some mortgage rates last month as problems in the US housing market spilled into the wider credit market, pushing up the London interbank offered rate — the rate at which banks lend to each other.

Against a difficult mortgage backdrop, HBOS, which owns Halifax, said this week it would no longer set market share targets for net lending.

HBOS — whose one-fifth share of the UK mortgage market is more than double nearest rival, Abbey — has in recent years targeted a 15 to 20 percent share, though its share slumped to 8 percent in the first half of 2007.

Louise Cuming, head of mortgages at price comparison site moneysupermarket.com, said of the move to scrap targets: “This shift by one of the UK’s biggest mortgage lenders could be the start of a more defined period of polarisation, with lenders falling over themselves for some applicants, while declining others or only offering them a very high price.

“Lenders are already tightening their attitude to risk and hiking up rates for the riskier categories of lending.”

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Loan Rates Jump

October 9th, 2007

The repercussions of the global credit crunch remind me of throwing a very large rock into a still lake and watching the consequences ripple far and wide. In its wake, mortgages have already begun to get more expensive even though the base rate hasn’t risen since July. Now it’s the turn of personal loans as Moneyfacts reports nine lenders have stepped up interest rates this week alone, with some loans soaring by as much as 4%.

The table below outlines the increases which have taken place this week to loans of £5,000 repaid over a three year period. Although some are worse than others it seems to indicate a general trend of rising costs for credit. Other lenders have also hiked rates for different levels of borrowing.

Lenders Who Have Raised Personal Loan Interest Rates This Week:

Provider	New Rate	Applies To Loans Of	Change	Monthly repayments before / after rate rise	Monthly Increase	Total Increase Over The Term
Bradford & Bingley	9.9%	£5,000 to £7,450	+3.2%	£161.42/ £153.35	£8.07	£290.52
Cheshire	9.9%	£5,000 to £7,450	+3%	£161.42/ £154.33	£7.09	£255.24
Derbyshire BS	9.9%	£5,000 to £7,450	+3%	£161.42/ £153.90	£7.52	£270.72
Eskimo Loans	9.9%	£5,000 to £25,000	+1%	£160.23/ £158.05	£2.18	£78.48
Masterloan	6.8%	£4,000 to £25,000	+ 0.3%	£152.93/ £153.57	£0.64	£23.04
Northern Rock	7.9%	£1,000K to £25,000	+0.5%	£155.72/ £154.82	£0.90	£32.40
Norwich & Peterborough BS	9.5%	£5,000 to £9,999	+0.7%	£162.03/ £160.45	£1.58	£56.88

Source: Moneyfacts

 

Just a few months ago it was possible to pick up a best buy loan for less than 6%. But banks and building societies are beginning to take a far more cautious approach to lending. Money lending is becoming an increasingly dicey business with mounting levels of bad debt. Not only are we seeing rising rates but even getting accepted for a loan in the first place could become more difficult, as lenders become anxious to manage the risks.

Given that personal loans are becoming a more costly way to borrow – we’ve said it before and we’ll say it again – you’ll need to shop around to find a competitive deal. The lowest rate personal loan I can find at the moment charges an interest rate of 6.3% (APR) on a debt of £5,000 over three years. Here the total amount you’ll have to repay is £5,486. But if, like many of us, you go for a more middle of the road loan which charges 12.9% (APR) you’ll end up having to repay £5,995. This is more than double the amount of interest and really is a needless waste of your money.

Personal loans still have their place in providing the peace of mind that comes with knowing exactly when you’ll be debt free. What’s more, if you choose a fixed rate deal you’ll know upfront how much you’ll need to repay while avoiding the shock of a sudden interest rate hike.

So if you decide a personal loan is the way to go, here are five tips for getting a good deal:

1. Choose a flexible loan – this will allow you to overpay or redeem the loan early without getting stung by a penalty.

2. Choose a fixed rate loan – you’ll know exactly how much your monthly repayment will be and you’ll avoid getting hit by rising interest rates.

3. Choose an unsecured loan – a loan that’s secured on your home could put it at risk if you fall behind on your repayments. Unsecured loans reduce this risk as your home is not used as security for the loan.

4. Don’t choose payment protection insurance (PPI) – although it sounds sensible, this type of insurance really is poor value for money and can significantly increase your repayments.

5. Do shop around – enough said!

Don’t forget there are other ways to borrow that may be better for you. The market for 0% credit cards for balance transfers and purchases is still going strong with generous extensions to interest-free periods. But you’ll need to be more disciplined and ensure your credit is fully repaid before the interest-free periods comes to an end. Otherwise you’ll get a kick in the teeth when the interest rate reverts to the typical APR.

Alternatively, you could consider moving existing credit cards debts to a new lifetime balance transfer card which charges a relatively low interest rate until the transferred balance is repaid. The most competitive on the market scrapes in at just under 5%.

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