People hoping to take out a £7,500 personal loan are typically facing the highest interest rates seen in six years, the data shows.
After years of deals at rock bottom, rates have risen across several lending rate tiers over the past three months, according to Moneyfacts, thanks to higher base rates.
The £7,500 to £10,000 tier, with a repayment term of five years, has seen many providers raise rates, including major banks.
The average rate on a £7,500 loan now stands at 5.2%, an increase of 0.8 percentage points over the past three months. It is now at its highest level since September 2016.
A personal loan is a type of loan that can be used to help someone pay for all kinds of things, including big purchases like a car or home renovations.
Typically, they are repaid on a monthly basis and at a fixed or variable interest rate, with a repayment term ranging from a few months to seven years.
They’re usually unsecured, which means you don’t need to use any collateral to get approved.
While rates seem to be on the rise, the best deals on the market are still relatively cheap.
For example, someone borrowing between £7,500 and £15,000 can potentially pay as little as 2.8% interest. However, this may not be the case for long.
Rachel Springall, finance expert at Moneyfacts, said: ‘This level (£7,500) is widely used as a representative APR level by many loan providers, and traditionally lenders would be conscious of keeping it competitive.
“However, during a cost of living crisis, the potential risk of borrower default is high, so lenders have decided to reprice in response.”
“A few lenders who charge less than 3% remain in this space, but it is uncertain whether this will be maintained in the coming weeks.”
|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%||seven%||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%|
What are the best deals?
The rate you pay on a personal loan will depend on how much you need to borrow and your credit history.
Those borrowing less than £5,000 will be subject to the most expensive rates while those borrowing between £7,500 and £15,000 will have access to the cheapest offers.
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For example, for someone who wants to borrow between £5,000 and £7,499, the cheapest deal available is currently offered by M&S Bank at a rate of 3.7%.
This means someone borrowing £5,000 with a view to paying it back over three years could expect to pay a total of £5,285 over the 36 month period.
For someone looking for a personal loan between £5,000 and £15,000, M&S Bank is again your best bet, according to Moneyfacts, offering a rate of 2.8%.
A £15,000 personal loan from M&S Bank, repaid over five years would cost the borrower £1,077 in interest, or £16,077 at the end of the 60 month period.
Rates are still low down to £25,000. Post Office Money offers a market-leading rate of 2.9% for those who need to borrow between £15,001 and £25,000.
£25,000 paid off monthly over five years will earn an additional £1,861 in interest. In other words, this will mean repaying a total of £26,861 over the 60 month period, which equates to
It should be noted that, just as with other forms of lending such as mortgages, personal lenders reserve their lowest interest rates for people with good credit histories.
A credit report displays a list of a person’s credit accounts, such as bank accounts, credit cards, utilities, and mortgages. It will also show their repayment history, including late or missing payments.
The credit score is a three-digit number that reflects this information and allows lenders to establish your repayment reliability.
If your credit report and score aren’t great, you may not be able to access these better rates.
Most lenders will allow you to verify if you are eligible for a loan through a credit check without impacting your score.
To compare the best personal loan offers on the market, it is worth using a comparison site.
Does it make sense to get one?
Although it is possible to obtain a personal loan to buy furniture, pay for a wedding or go on vacation, it would always be a good idea to save up for such expenses.
However, there may be good reasons to take out a personal loan.
Experian Credit Score Strips
Very bad: 0 – 560
Poor: 561 – 720
Fair: 721 – 880
Good: 881 – 960
Excellent: 961 – 999
For example, you might want to consolidate expensive credit card debt or pay for emergency repairs on a property that you otherwise couldn’t afford based on your current savings.
Home renovations or one-time life events such as weddings or funerals may also warrant taking out a personal loan.
With the cost of living squeezed, you’ll need to be sure you’ll be able to meet the monthly repayments.
Failure to do so not only means additional financial pressure, but can also have a negative impact on your credit score and credit report, which in turn can hinder your chances of being able to borrow in the future, whether for a credit card, loan or mortgage. .
Springall adds: “Anyone comparing offers, whether to consolidate debt with a loan or for another reason, it would be wise to check their credit score before applying, such as with Experian.
“The coming months are uncertain amid the rising cost of living, but it’s wise to seek advice from a debt counseling charity if borrowers are struggling or fear they won’t be able to keep up with their refunds.”
Ten tips to boost your grade
1. Register on the electoral lists at your current address
2. Use a credit card responsibly and always try to keep a good amount of credit available
3. Check your credit report regularly and ask for any errors to be corrected
4. Never withdraw money from your credit card
5. Limit requests for new credit
6. If you have bad credit, stop asking for more
7. If you don’t have a credit card, get one: but be sure to pay it monthly
8. Don’t Miss Refunds
9. Let your credit history mature
10. Don’t Keep Unused Cards