If after a bout of frantic Holiday
shopping and several over-enthusiastic trips to the Summer sales
you find your debts are running away with you, now might be the
time to seize the reins and consider a personal loan.
The Credit Card Research Group has
estimated that cardholders spent a record £12.3 billion on
Christmas this year, making it likely that more people than ever
before will be relying on temporary loans to see them through the
After the announcements made by most
of the banks and building societies concerning cuts to their mortgage
rates in response to the quarter-point base rate cut last week,
borrowers would be justified in expecting similar reductions in
the cost of a personal loan.
These cuts have not materialised.
Among the main lenders only the Nationwide has cut its secured personal
loan rate by 1.1 per cent. Unsecured loans have remained unchanged.
"It is outrageous," a spokeswoman
from MoneyFacts, the monthly financial data publication, said. "The
cost of borrowing money on the wholesale market has gone down but
the banks and building societies are not passing on their savings
to the customers."
Steve Porter, head of the Halifax's
personal loan product development team, said: "The dynamics of a
personal loan are very different from those of a mortgage. Risk
levels are higher on a personal loan than on a mortgage and the
length of the term is shorter, factors which both affect the pricing."
Instead of permanent cuts in rates
borrowers are having to make do with temporary sweeteners offered
by some of the lenders in what they refer to as their January sales.
Unsecured personal loan
If you want to borrow £1,000
and pay it off in six months the cheapest method is still a credit
card. But for borrowers who need a larger loan or who wish to make
repayments over a longer period, an unsecured personal loan should
offer the best deal.
Unsecured personal loans have a fixed
rate for the whole of their term, so new rates do not apply to existing
Several banks and building societies
are offering cut-priced winter deals. Halifax has a discount of
1 per cent available to new customers until February 13; Norwich
& Peterborough is offering the same discount until January 31. The
Royal Bank of Scotland has a 3 per cent cashback on its personal
loans until the end of March. Yorkshire Bank has cut its rates by
up to 3.2 per cent, while Marks & Spencer is offering customers
signing before March 31 the chance to win a £5,000 holiday.
However, for the best year-round
deals on a £1,000 unsecured loan, repaid over 12 months, try
Northern Rock or Sainsbury's Bank. For an unsecured loan of £5,000,
with repayments spread over three years, the best deal is available
from Clydesdale Bank with an APR of 12.8 per cent and monthly repayments
with insurance of £181.88. Several lenders such as Marks &
Spencer, Woolwich, Halifax, and the Bank of Scotland offer cut-price
rates on personal loans for existing mortgage or account customers.
If you decide to take out an unsecured
personal loan be sure to check all the details. Some lenders have
penalties if you want to pay off the loan early. Other loans may
not be available to the self-employed or people on short-term contracts.
There is also the issue of insurance
to consider. Several lenders have eye-catching APRs but when compulsory
insurance is added to the repayments, the figures begin to lose
their shine. Sometimes the price of insurance for the whole loan
may be added at the outset and charged interest at the same rate.