Are Low Interest Personal Loans Available?

Unsecured Loan Rates Rise Against Backdrop of Falling Interest Rates

Sep 2, 2009

Falling interest rates are a direct consequence of the economic downturn, but unsecured loan rates have risen. Find out whether low interest personal loans are available.

Everyone wants a low interest personal loan, but they are becoming harder to find. Whilst the Bank of England has reduced the cost of borrowing to just 0.5%, unsecured loan rates have risen sharply. Defaults have sky-rocketed during the global credit crisis.

With unemployment continuing to increase, lenders are applying stringent criteria before they will now approve a low interest personal loan. This has not only led to a reduction in approvals, it has also meant that a higher rate of APR is charged against a backdrop of falling interest rates.

Low Interest Personal Loans Vs Bank Profit Margins - Higher Cost of Borrowing

According to Moneynet.co.uk, unsecured loan rates have increased from 8.71% to 12.27% over the past 5 years. Andrew Hagger of Moneynet stated: "With the base rate now a mere 0.5 per cent compared with 4.75 per cent five years ago, lenders' margins have shot up from 3.96 per cent to a staggering 11.77 per cent."

Whilst the two-year swap rate is just 2.04%, the median rate of APR on a two-year fixed-rate mortgage is 5.18%. A margin of 3.14% was the highest ever recorded. Moneyfacts.co.uk personal finance analyst, Michelle Slade, stated: "Margins continue to be increased as lenders look to repair dented balance sheets."

Unsecured Loan Rates - Why the Cost of Borrowing is Rising Despite Falling Interest Rates

Falling interest rates have little bearing on whether low interest personal loans are offered to customers. Rates will continue this trend until unemployment and levels of default begin to stabilise. This higher margin provides financial institutions with 'insurance' against future defaults from hard-pressed borrowers. This margin allows the banks to repair their balance sheets.

Pierre Williams, head of research at MoneyExpert.com said that: "There's also some suggestion that lenders are deliberately looking to price themselves out of the market. Basically they don't want to lend because they believe it is too risky." Most low interest personal loans are not secured.

Bad Credit Rating Means No Low Interest Personal Loans - Cost of Borrowing Increase

Individuals who have missed or made late payments on credit agreements during the last 6 years will find that cheap borrowing is virtually impossible. Unsecured loan rates from bad credit lenders are extremely high. The cost of borrowing on a Payday loan is £20 pcm for every £100 borrowed.

In order to identify a cheap loan, it is essential that the applicant trawls the market using a price comparison site. Unsecured loan rates with the lowest APR are unlikely to be approved for those with a bad credit rating. Don't apply for multiple credit products at the same time as this will not only set off an alarm for lenders, each search will show on a credit report for a period of not less than 12 months.

Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional before proceeding.

The copyright of the article Are Low Interest Personal Loans Available? in Personal Loans is owned by Asa Ghaffar. Permission to republish Are Low Interest Personal Loans Available? in print or online must be granted by the author in writing.