Borrowers Can 'Still Get Good Deals' On Personal Loans

Although low-rate loans are becoming increasingly scarce, prospective borrowers can still access competitively-priced products, it has been suggested.

Although low-rate loans are becoming increasingly scarce, prospective borrowers can still access competitively-priced products, it has been suggested.

In research released by MoneyExpert, the typical annual interest on an unsecured loan of 5,000 pounds stands at about 9.44 per cent, with the most expensive and cheapest rates standing at 13 and 6.7 per cent respectively. Meanwhile, just four lenders are offering products with interest of less than seven per cent. According to the price comparison website, the diminishing availability of cheap loans is due to the impact of the credit crunch which has seen a number of financial services providers hike the interest rates attached to their products and become stricter with borrowing criteria in an attempt to make sure that consumers will be able to afford repayments.

It was also suggested that the difficulties experienced in the financial market as a whole have seen several firms, including Leeds Building Society, GE Money and LV=, withdraw from the unsecured loans market altogether. Meanwhile, research from MoneyExpert also revealed that 1.91 million adults have had an application for an unsecured loan rejected in the six months leading up to September 30th - up from the 1.39 million noted during the previous half-yearly period.

However, those applying for a loan of 7,500 pounds are reported to be able to access more competitive rates of interest. According to MoneyExpert, those who are looking to take out such an amount of money are subject to a typical rate of 7.97 per cent. Meanwhile, seven providers offer interest on their products which is under the seven per cent mark. Tesco and Sainsbury's Bank were revealed to be among those offering some of the most competitive loans, while in comparison the highest rates for a 7,500 pounds loan start from 10.94 per cent.

Commenting on the figures, Sean Gardner, chief executive of MoneyExpert, said: "Borrowers are feeling the pinch, with those wanting to borrow less getting squeezed the most. It may seem paradoxical but you will be charged more on average for borrowing less. There are fewer competitive deals around for people borrowing 5,000 pounds than for those wanting 7,500 pounds".

"Lenders take the view that those borrowing more are in general a better risk than those borrowing less and offer better rates as a consequence. There are still good deals out there if you need a personal loan but borrowers need to be aware that lenders are getting tough on applications and rates."

Such sentiments were echoed in research conducted by moneysupermarket earlier this month. Findings from the price comparison website indicated that nearly half (48 per cent) of those applying for a personal loan in October were rejected, compared to the 33 per cent recorded in April, the Telegraph reported. In addition, two-third of personal loans taken out by households were revealed to be used as a form of debt consolidation to pay off creditors quickly and effectively. However, the publication stated that as interest rates rise and financial providers become stricter with their borrowing criteria more consumers could be set to receive "a major financial headache".

About the author: Steve Smith writes for the 1 Stop Finance Shop where you can apply online for debt consolidation loans. We specialise in all sorts of personal loans, and secured loans with online application.