The Last Of The Low-Rate Loans!

Banking and Borrowing

29 November 2006 | 0 Comments

As we predicted, lenders have begun to raise their interest rates. If you want a cheap loan, grab a great deal while you can...

In an article earlier this month entitled The Death Of Cheap Credit?, I warned that the latest hike to the Bank of England's base rate would inevitably lead to borrowers paying higher interest rates for personal loans, mortgages and so on. Sure enough, a fortnight later, and my prediction has come true, as several leading providers of low-rate personal loans have hiked their lending rates.Halfway through this year, borrowers could choose between ten personal loans with interest rates below 6% APR, including those from market leaders Moneyback Bank and Northern Rock. Alas, the latest base-rate increase has forced both of these big players to raise their lending rates, plus The AA has followed suit, too.Here's how my table for a £5,000 loan repaid over three years (without rip-off payment protection insurance) has changed since my article of 13 November:LenderTotal amount repayable (£)Typical APR (%)Masterloan5,439.965.7Moneyback BankWas 5,435.28,now 5,447.52Was 5.6,now 5.8Abbey5,447.525.8Northern RockWas 5,439.96,now 5,455.44Was 5.7,now 5.9As you can see, the cost of this loan from Moneyback Bank has increased by £12.24 over three years (34p a month), with the cost of a Northern Rock loan rising by £15.48 (43p a month). Although these are not huge sums, they do show that lenders are looking to restore their profit margins to their previous levels before the base-rate rises.Furthermore, as bad debts start to bite and the Office of Fair Trading and the Financial Services Authority crack down on the widespread mis-selling of, and overcharging for, payment protection insurance, I expect more rate rises further down the line.Therefore, if you're thinking about taking out a loan at some point soon, I'd do so now rather than wait to see what happens to rates next year. Indeed, if the Bank of England raises its base rate next February to 5.25% a year, we could see no loans available at rates under 6% APR. So, don't delay -- act today!Financial health warning: Borrowing more than you can comfortably afford to repay is daft. Don't do it!More: Use the Fool to compare loans and compare credit cards!

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