Best personal loan rates: Banks start to up rates meaning best deals might not last long

People hoping to take out a £7,500 personal loan are typically facing the highest interest rates seen in six years, data shows. 

After years of rock bottom deals, rates have risen across several loan rate tiers over the past three months, according to Moneyfacts, thanks to base rate rises. 

The £7,500-£10,000 tier, with a repayment term of five years, saw numerous providers increasing rates, including high street banks. 

The average rate on a £7,500 loan now stands at 5.2 per cent, a rise of 0.8 percentage points over the past three months. It now stands at its highest point since September 2016.

Those looking for a personal loan between £7,500 and £10,000 will have seen average rates rise by 0.8 percentage points over the past 3 months

A personal loan is a type of loan that can be used to help someone pay for all manner of things, including big purchases such as a car or home improvements.

Typically they are repaid on a monthly basis and be on a fixed or variable interest rate, with a repayment term ranging from just a few months to up to seven years.

They are typically unsecured, which means you don’t need to use collateral to get approved.

While rates appear to be on the up, the best deals on the market remain relatively cheap. 

For example, someone borrowing between £7,500 and £15,000 can potentially pay as low as 2.8 per cent in interest. However, this may not be the case for long.

Rachel Springall, finance expert at Moneyfacts, said: ‘This tier (£7,500) is widely used as a representative APR tier by many loan providers, and traditionally lenders would be conscious to keep this competitive. 

‘However, during a cost-of-living crisis, the potential risk for borrowers to default is elevated, so lenders have moved to reprice in response. 

‘A few lenders that charge less than 3 per cent remain in this space, but whether this is maintained in the weeks to come is uncertain.’ 

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 under £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 deals.

For example, for someone wishing 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 per cent.

This means someone borrowing £5,000 with a view to repaying over the course of 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 once again your best bet, according to Moneyfacts, offering a rate of 2.8 per cent.

A £15,000 personal loan from M&S Bank, being repaid over five years would cost a borrower £1,077 in interest, or £16,077 at the end of the 60-month period. 

Rates are still low up until £25,000. Post Office Money is offering a market leading 2.9 per cent rate to those needing to borrow between £15,001 and £25,000. 

£25,000 being repaid monthly over five years will rack up an additional £1,861 in interest. In other words it will mean repaying a total of £26,861 over the 60-month period, which equates to 

It is worth noting that just like with other forms of lending such as mortgages, personal loan lenders reserve their lowest interest rates for people with a healthy credit history. 

A credit report shows a list of a person’s credit accounts, such as bank accounts, credit cards, utilities and mortgages. It will also display their repayment history, including late or missing payments.

The credit score is a three-digit number that reflects this information and enables lenders to establish how reliable you are when it comes to repaying money.

If your credit file and score isn’t great, then you may not have access to these top rates. 

Most lenders will enable you to check if you’re eligible for a loan via a soft credit check without impacting your score.

To compare the best personal loan deals on the market, it’s worth using a comparison site.

Personal loan lenders reserve their lowest interest rates for people with the lowest credit scores.

Is it sensible to get one?

While it is possible to get a personal loan to buy furniture or pay for a wedding or go on the holiday of a lifetime, it would always be sensible to save up for such expenses.

However, there can be good reasons to take out a personal loan.

For example, you may wish to consolidate costly credit cards debts or pay for some emergency repairs to a property that you would otherwise be unable to do based on your current savings.

Home renovations or one-off lifetime events such as weddings or funerals may also justify taking out a personal loan. 

Given the cost of living squeeze, you will have to be certain that you will be able to keep up with the monthly repayments.

Failing to do so will not only means added financial strain, but can also negatively impact your credit score and credit report that in turn can hamper your chances of being able to borrow in the future, whether that be for a credit card, loan or mortgage. 

Springall adds: ‘Anyone comparing deals, whether that be to consolidate debts with a loan or for another reason, they would be wise to check their credit score before they apply, such as with Experian. 

‘The months ahead are uncertain amid the rise in the cost of living but seeking advice from a debt advice charity is wise should borrowers be struggling or fear they will be unable to keep up with their repayments.’ 

This post first appeared on Dailymail.co.uk