Wednesday, 03 Oct 2007

Personal loan interest rates are rising fast, as the credit crunch nips borrowers' ankles.

The Bank of England's five interest rate rises since last summer and the rising cost of inter-bank lending - the so-called credit crunch - has led interest rates to increase for personal loans, finds Moneyfacts.co.uk.

"This week loan rates have taken a real battering, with a total of nine providers hiking interest rates on some tiers by up to four per cent," said Moneyfacts analyst Lisa Taylor.

"The last nine months has seen a steady increase in the rates available for unsecured personal loans, only four months ago sub six percent rates were available, whereas today you would be hard pushed to get your hands on a rate of less than 6.9 per cent."

With rates rising, shopping around for a personal loan is as imperative as ever as the difference between the cheapest and most expensive loans on the market is more than £500 over a three-year term.

"Don't assume a personal loan is always the best method for refinancing or making purchases on credit. There are still some great zero per cent deals to be found in the credit card market, with up to 15 months' zero per cent on purchases and balance transfers, but these only make financial sense if you are looking for short-term borrowing," explained Ms Taylor.

A further option is to consider a 'life of balance' deal - which offers a lower rate of interest on balance transfers until they are paid off in full.

Ms Taylor concluded: "The golden rule for any form of debt consolidation is to cancel, close and cut up your existing forms of credit.

"Keeping existing credit cards and overdraft limits can prove to be too big a temptation, and a few months down the line you could be back to square one."

News Source:
http://www.myfinances.co.uk/loans/news/