Over the past two years, high inflation has squeezed household finances, driving demand for credit as people look to plug the gap. This has meant the UK personal loan market has grown by 8% in the past year, and is estimated to be worth £37.7bn — and projected to reach £43.9bn by 2027§.
However, while demand has grown, so has lender caution — with people now a fifth less likely to be eligible for a loan than they were in December 2021 (just before the start of the Bank of England’s 14 consecutive rate hikes).
The table below shows the cost of five of the top loan products for £3,000 in December 2021, and at the present time. The market-leading offer has more than doubled, from 4.9% to 9.9%, meaning an increase to the total amount repayable of £231.68 (from £226.84 to £458.52). The average APR for the top five loans has increased by 3.18%, increasing the total repayable by £145.41.
|1 December 2021||16 October 2023|
|Personal Loan of £3,000 x 36 months|
|APR||Monthly||Interest Cost||APR||Monthly||Interest Cost|
|Metro Bank||4.90%||£89.63||£226.84||M&S Bank||9.90%||£96.07||£458.52|
|Hitachi P F||8.10%||£93.75||£375.07||AA||10.70%||£96.97||£490.92|
|AVERAGE Top 5||7.58%||£93.08||£350.98||AVERAGE Top 5||10.76%||£97.12||£496.39|
“The past two years have seriously squeezed people’s pockets, and stubborn, high inflation continues to pile on the pressure. To help tide themselves over, more people are turning to credit, but to make things even harder, the cost of borrowing has soared.
“It’s essential that if you’re looking for a loan, you take the right steps to find the best product for your needs. This means checking your credit report, working out your best options, and checking your eligibility before you apply. Banks are being extra careful with who they lend money to, and almost one in three people have been refused a personal loan.
“Some lenders will ask if you’d like to connect your open banking data when applying for a loan. This will give them a far more accurate and up to date picture of how you’re managing your money, so you could be more likely to unlock a better offer.
“If you’re struggling with your finances, then download the free TotallyMoney app. It’ll help you track paid and upcoming bills, and will tell you which ones could impact your credit score. We also work with innovative lenders who’ll let you connect your open banking data to help you find the best option for your circumstances.”
“It’s not just credit card and overdraft borrowing costs putting a drain on consumers’ finances — opting for a personal loan has become a lot more expensive too.
“For people looking to borrow to change their car, carry out some home improvements or consolidate borrowing, interest rates are now more than double what they were before the base rate hikes began.
“An extra few pounds each month may not sound like a big deal, but when you look at the full term of the loan it’s a major extra cost — for example borrowing £10,000 over 5 years will set you back £863 more in interest costs.”
1. Check your credit report
“9.8 million adults (18.9%) lack confidence in making financial decisions, but checking your credit report can give you the confidence to move your money forward. It’s free to do, and you’ll get to see all the information banks use when choosing who to lend money to. If you spot something that doesn’t look right, you can raise a dispute, and our data shows that those who check their report have a better score.”
2. Consider all your options
“If you want to borrow a relatively small amount, it might be cheaper to use a 0% purchase card. Another option could be a secured loan, as these can sometimes let you borrow more money, at a lower interest rate — but missing payments on these could lead to your home or car being repossessed, so there’s more at risk. Always make sure you compare the offers, and weigh up the pros and cons.”
3. Do your calculations
“When comparing different offers, do your calculations to make sure you’re getting the best product for your own personal circumstances. Higher rates don’t always mean worse offers, as you might be repaying the money over a different length of time, while some credit cards might offer a higher interest rate, but also a 0% introductory rate.”
4. Shop around
“Worryingly, one in three (33%) people who applied for a loan last year didn’t shop around, with one in ten (12%) saying, ‘I didn’t think I would get an account elsewhere’§. This means millions might have missed out on the best deals, and instead have taken something out which could cost them more in the long term. When it comes to finances, loyalty doesn’t pay. So always do your research on what else is out there, so you can find the best offer for your personal needs.”
5. Check your eligibility
“Almost one in three (31%) adults were refused a personal loan in the past two years, and while the outcome of your application won’t show up on your credit report, making multiple applications will. This can act as a red flag to lenders, so when shopping around, make sure you use an eligibility checker to find out your chances of being accepted. This will mean you can apply with confidence, and avoid credit rejection.”
6. Get the guarantees
“Different firms will have a different name for this but look out for lenders which are offering guaranteed limits and rates. That way you’ll know exactly what you’re applying for, and how much it’s going to cost you.”
7. Read the small print
“Different lenders will have different terms and conditions, and these can even vary between offers. So, make sure you do your homework and stay a step ahead of the banks. Some might charge you more for repaying your loan early and it’s likely you’ll incur fees for any missed payments.”
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