Despite repeated predictions that interest rates are set to rise, the Bank of England continues to keep them at historically low levels. While savers continue to suffer these low rates mean that there has never been a better time to take out a personal loan with APRs on all forms of unsecured lending cheaper than they were at any time in the two decades that led up to the recession of 2009/10.
The likelihood is that personal loans will continue to be offered at low interest rates for the rest of the year at least. The UK economy has slowed markedly since the rapid growth of 2014 with GDP expansion now back around the UK’s long-term average of between 2 and 2.5 per cent. Sluggish growth in the Eurozone and a marked slowdown in China are also having a depressing effect on interest rates. Most economists now believe that rates will not rise until next year.
The interest rates being charged on personal loans rose during the first six months of 2015 as banks and other lenders bet on a rate rise as the economy grew strongly. At the time, the assumption was that the Bank of England would raise the base rate during the autumn of 2015 or early in 2016. But inflation fell into negative territory at the end of last year and has only just risen back to 0.5 per cent.
As a result, the interest rates charged on many different forms of credit including personal loans have dropped back. There are, once again, many great deals on personal loans and, with the continued expansion of the market, a wide number of lenders to choose from. For those with poor credit ratings, there are an increasing number of sub-prime personal loans, which do not charge extortionate interest rates.
Debt rising again
The total amount of debt owed by British households fell in the aftermath of the financial crisis and the recession that followed it. Many people cut back on their outgoings, using the money to repay loans and credit card debt. But the amount of household debt has started to rise again with figures from the Office for National Statistics suggesting that the average British household now owed about £11,800 on unsecured credit. The average family now owes about 27 per cent of their annual pay on personal loans, credit cards, car finance and other forms of unsecured borrowing.
With wage growth continuing to be sluggish, that number is expected to continue to rise as many households fall back on credit cards to finance holidays and other luxuries. As a result, more people are expected to consider debt consolidation this year as they try to reduce their monthly expenditure. Many personal loans are tailored for debt consolidation with large sums on offer and long periods to repay.
One lender is currently offering an unsecured loan of between £2,000 and £15,000 with an APR of 18.2 per cent for people with bad credit records. The repayment schedule can be tailored to between two and six years. At the higher end, and for those with particularly poor credit records, another lender is will to lend between £500 and £25,0000 over one to 10 years with a representative APR of 49.9 per cent.
The highest APR is currently 89.7 per cent from one lender with smaller loans of between £200 and £3,000.
Those with better credit records have access to much lower interest rates. All of the main lenders are currently advertising loans with APRs ranging from 3.2 per cent to 4.6 per cent with amounts of between £1,000 and £25,000 available. The repayment schedules vary between one and seven years.
Personal loans growing in popularity
With these low rates of interest, personal loans are expected to continue to be popular, particularly among people who want to lower their monthly outgoings by consolidating all of their debts into one loan. If you’ve been taking advantage of introductory interest free offers on credit cards and these are now running out, a personal loan could be cheaper than paying the variable interest rates on your credit cards. It will also make it simpler to budget over the long term because you will know exactly what your outgoings are.
Personal loans have also been popular among people who want to carry out modest home improvements like redecorating or refreshing bathrooms and kitchens.
If you do have a poor credit record, then taking out a small personal loan tailored to people in your circumstances could be a great way to rebuild your score. Borrowing a small amount and then making all of your payments on time will gradually improve your credit record and make it more likely that you will be able to borrow larger amounts at lower interest rates in the future.
Jenna Lee of online credit score and advice service Credit Karma said: “Debt gets a bad reputation, but a reasonable amount of debt can actually be good for your credit health if you manage it correctly. If you make each payment on time and don’t use too much of the credit you’ve been granted, you can show lenders that you’re a reliable borrower who is likely to pay back debts in the future.”
But make sure that you are not seduced by headline APRs and large amounts on offer before you borrow. Always shop around for the right personal loan and don’t borrow more than you can afford to repay over the life of the loan to avoid trouble later on.
Article provided by Mike James, an independent content writer working together with Solution Loans, a technology-led finance broker with many years’ experience in advising clients of their most suitable type of credit.