After a period within which personal loans were sometimes lower than mortgage rates, the ongoing cost of these types of loans is now beginning to rise.
Personal loans are defined as loans that are not secured by an underlying asset. These loans are then used in order to pay for cars, home improvements or to replace several smaller loans.
Personal loan rates dipped below 3% in late 2016 as Sainsbury's bank offered a loan that charged 2.9% (Amelia Murray, Telegraph, December 2017).
Due to the rise of the Bank Rate to 0.25% recently, many of the loans predicated on the previously low bank rates are now no longer being offered.
The providers offering the lowest rates for personal loans (M&S Bank, Sainsbury's Bank, TSB and Clydesdale/Yorkshire Bank) have all increased their rates on personal loans over £10,000 (Moneycomms, December 2017).
For example, if you had borrowed £12,000 over 3 years at the previously lower rate, you would have paid approximately £534 in interest during the term of the loan.
If this rate was increased to the new rate of 3.6% offered by Clydesdale, the loan would have generated interest payments of £666 instead (Amelia Murray, Telegraph, December 2017).
At the time of writing this article only two providers offered rates below 3%, Sainsbury's Bank and John Lewis Finance.
According to Andrew Haggar of Moneycomms, the "new squeeze" on lenders (and therefore you!) was down to “concerns from the regulator and Bank of England regarding a possible credit bubble” and “inflation biting hard.”
The above factors make it even more important to reduce your personal debt by putting a sound personal financial plan in place. Westminster Wealth Management is able to assist in putting your personal finances in order, ensuring that your money goes towards building wealth for the future rather than interest payments. Contact us today.
The value of investments and income from them may go down as well as up and you may not get back the original amount invested.
Information is based on our current understanding of taxation legislation and regulations which is subject to change.
Cheapest personal loan rates jump by as much as 25pc