The data shows that people hoping to secure a £7,500 personal loan typically face the highest interest rates in six years.
After years of underwhelming deals, rates have moved up across several loan rate tiers over the past three months, according to Moneyfacts, thanks to base rate increases.
The £7,500 to £10,000 category, with a five-year repayment period, has seen a number of providers increase rates, including major banks.
The average rate for a £7,500 loan is now 5.2 per cent, an increase of 0.8 percentage points over the past three months. It is now at its highest level since September 2016.
Those looking for a personal loan of between £7,500 and £10,000 would see average interest rates rise by 0.8 percentage points over the past three months.
A personal loan is a type of loan that can be used to help someone pay off all kinds of things, including large purchases like a car or home improvement.
They are usually repaid on a monthly basis and are on a fixed or variable interest rate basis, with a repayment period ranging from just a few months to seven years.
They are usually unsecured, which means you don’t need to use collateral to get approved.
While prices seem to be on the rise, the best deals on the market remain relatively cheap.
For example, someone borrowing between £7,500 and £15,000 could pay interest as low as 2.8 per cent. However, this may not be the case for long.
Rachel Springolle, financial expert at Moneyfacts, said: ‘This level (£7,500) is widely used as a representative APR level by many loan providers, and it is usual that lenders are aware of maintaining this competition.
However, during a cost-of-living crisis, the potential risk for borrowers to default rises, so lenders have moved to repricing in response.
“A few lenders charging less than 3 percent are still in the business, but whether this will be maintained in the coming weeks is uncertain.”
| Average Unsecured Personal Loan Rate (APR) | June 2020 | June 2021 | March 2022 | May 2022 | June 2022 | ||
|---|---|---|---|---|---|---|---|
| £3,000 over three years | 14.8% | 14.4% | 14.3% | 14.1% | 14.3% | ||
| £5,000 over three years | 7.4% | 7.1% | 7% | 7.1% | 7.4% | ||
| £7,500 over five years | 4.5% | 4.4% | 4.4% | 4.6% | 5.2% | ||
| £10,000 over five years | 4.5% | 4.4% | 4.4% | 4.6% | 5.2% | ||
| Credit: Moneyfacts |
What are the best offers?
The rate you pay on a personal loan depends on how much you need to borrow and your credit history.
Those who borrow less than £5,000 will be subject to the most expensive rates while those who borrow between £7,500 and £15,000 will have access to the cheapest deals.
For example, for someone who wants to borrow between £5,000 and £7,499, the cheapest deal currently available is offered by M&S Bank at a rate of 3.7 per cent.
This means that someone who borrows £5,000 with the aim of paying it back over three years can expect to pay a total of £5,285 over 36 months.
For someone looking for a personal loan of between £5,000 and £15,000, M&S Bank is again your best bet, according to Moneyfacts, offering a rate of 2.8 per cent.
A £15,000 personal loan from M&S Bank, to be repaid over five years would cost the borrower £1,077 in interest, or £16,077 at the end of the 60-month period.
Prices are still as low as £25,000. Post Office Money offers a market leading rate of 2.9 per cent for those who need to borrow between £15,001 and £25,000.
£25,000 per month is repaid over five years resulting in an increase of £1,861 in interest. In other words, it would mean a total payment of £26,861 over a 60-month period, which equates to
It should be noted that just as with other forms of lending such as mortgages, personal loan lenders reserve the lowest interest rates for people with a healthy credit history.
A credit report shows a list of a person’s credit accounts, such as bank accounts, credit cards, utilities, and mortgages. It will also display your payment history, including late or missed payments.
A credit score is a three-digit number that reflects this information and enables lenders to determine how reliable you are when it comes to paying money back.
If your credit profile and score are not good, you may not be able to reach these higher rates.
Most lenders will enable you to check whether you qualify for a loan via a soft credit check without affecting your score.
To compare the best personal loan deals on the market, it’s worth using a comparison site.
Personal loan lenders reserve the lowest interest rates for people with the lowest credit scores.
Is it reasonable to get one?
While it is possible to get a personal loan to buy furniture, pay for a wedding or go on the vacation of a lifetime, it will always be sensible to save on such expenses.
However, there can be good reasons for obtaining a personal loan.
For example, you may want to consolidate costly credit card debt or pay for some emergency repairs on a property that you would otherwise be unable to do based on your current savings.
Home renovations or one-off events such as weddings or funerals may also justify a personal loan.
Given the pressures of the cost of living, you need to be sure that you will be able to keep up with the monthly payments.
Not only does not doing so mean additional financial stress, but it may also negatively affect your credit score and credit report which in turn can hinder your chances of borrowing in the future, be it for a credit card, loan or mortgage. .
Anyone comparing deals, whether it’s to consolidate debt with a loan or some other reason, Springall would be wise to check their credit score before applying, as is the case with Experian.
“The months ahead are uncertain amid the rising cost of living, but seeking advice from a debt counseling charity is wise if borrowers are struggling or fear they will not be able to keep up with their payments.”
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