Cheap Credit, But Not For Much Longer

At present it's possible to get cheap personal loans and credit cards, but this may not last much longer.

I'm loathe to call personal loans cheap. Primark is cheap. Lidl is cheap. Budgies cheap. But loans cost real money. Still, when it comes to borrowing these days, the best personal loans and credit cards are about as cheap as they can get. The problem is that this can't last.

One day, interest rates will rise and it appears that this day may not be far off. The Bank of England has been very 'hawkish' about interest rates; they've been trying to set everyone's expectations for a probable rise this month.

Economists working for banks try and predict which way interest rates are moving and their collective predictions can be seen in LIBOR rates, which are the rates at which banks will lend to each other at. Looking at these now, I can see that the banks currently believe that rates will go up at least 0.5%, but more likely 0.75%, in the next twelve months. This will take the base rate to 5.5%.

Now, all economic forecasting needs to be taken with buckets of salt, but we should still consider the possible affects of these predictions and prepare ourselves for the worst.

Higher interest rates will obviously mean more expensive personal loans, so, if you need a loan some time in the next few months, everything else being equal you should borrow now before rates rise further.

It's not necessarily the same for credit cards. Hopefully, you pay your bill off each month, so you're not charged interest anyway. Also, there are no signs from lenders that they are going to withdraw 0% deals any time soon. You can still get year-long interest-free deals for both purchases and balance transfers (although you should expect a 2-3% fee for making transfers).

Still, there are some scenarios where credit-card users may be affected by rate rises. If you're hoping to get a fixed-for-life balance-transfer card then you'll want to lock in a lower rate now before it goes up.

You may also be affected if you want to get a regular card with a low standard APR or if you're a bad Fool because you've left your debt on a high-interest card after the introductory deal has expired. In these cases, interest rate rises, especially if they total three-quarters of a percent, could be significant.but even without the rises, you people should move your debt to a cheaper credit card or loan anyway!

There is one overriding rule about borrowing that I must mention here: don't borrow unless you have to. You should see loans and credit cards (or 'debt' cards, as we prefer to call them) as a last resort. In the long run it makes a lot more sense to save up for things and then pay for them out of your own money.

> You can compare personal loans and compare credit cards of all types through the Fool.