The State of the Market for Personal Loans

The UK market for unsecured personal loans an important source of income for many Britons. Happily, the UK market for personal loans has continued to improve for consumers as Nationwide, a prominent UK lender, has recently decided to offer personal loans for less than 5 percent. The move by Nationwide is only the latest in a line of decisions by national lenders to cut rates on personal loans, leading to an ongoing price war between banks. Personal loans may be used for any reasonable purpose, and are not secured by an asset such as a car or home. (See http://www.thisismoney.co.uk/money/cardsloans/article-2365951/Nationwide-tops-personal-loan-charts-4-9-rate.html and http://money.aol.co.uk/2013/07/18/nationwide-cuts-loan-rate-to-4-9/)

As is usually the case when a bank offers an unusually low rate, Nationwides ultra-low rate of 4.9 percent is only available to those that meet its criteria. In this case, borrowers must be a part of its FlexAccount, FlexDirect or FlexPlus programs. The new rate is a significant reduction from the old rate, which was 5.9 percent. Customers have until 26 September 2013 to take advantage of the newer rate.

Those that dont meet Nationwide’s criteria must pay a higher rate of 6.2 percent—and must be an existing customer to receive this low rate. However, interested consumers can join Nationwides FlexDirect account and wait to see if Nationwide offers a similar deal in the future. The FlexDirect account does not charge fees and also comes with interest free overdraft protection for 12 months. Prospective borrowers who meet the criteria have a better-than-even chance of obtaining the loan, as government regulations require lenders to offer their best rates to at least 51 percent of applicants accepted for a loan.

Other lenders also offer similar terms. Zopa, an online service, offers debtors the opportunity to borrow money at an equally row rate. Zopa is a service that lets ordinary people loan each other money over the internet, a process it terms “peer-to-peer” lending. (See http://uk.zopa.com/)

Other, more conventional competitors also offer very low personal loan rates. Derbyshire and Marks & Spencer offer personal loans at the rate of 5 percent, while Clydesdale offers rates of 5.1 percent.

Those that are willing to pay off a personal loan in only three years can acquire loans at a slightly lower rate. As of this writing on July 2013, it was possible to borrow £7,500 at an APR of 4.8 percent at Zopa. Other lending institutions offer similar rates.

Personal loans are an important part of the loan market, and low rates arent their only advantage. Personal loans also offer a fixed interest rate, unlike some mortgages and other instruments that can feature rates that fluctuate with the market. Moreover, because they are unsecured, failure to pay a personal loan wont lead to confiscation of a consumers home or car in the great majority of cases.

Of course, there are drawbacks to taking out a personal loan. Many personal loans penalize borrowers who wish to pay back the loan early. Also, because outstanding loans can inhibit your ability to take out new loans such as a mortgage, a personal loans early payment penalty prove to be a significant drawback. Moreover, personal loans are quite difficult to get if you dont have a reasonably strong credit history.

Those whose personal finances could use an injection of raw cash have other options. Many credit cards offer users the right to make purchases at 0% interest. Remember, though, that that the zero percent introductory rate will someday end, and when it does, the new rate may prove very onerous.

Those who have trouble meeting the oftentimes-stringent credit requirements of a personal loan can receive a guarantor loan. A guarantor loan is a loan that more than one person promises to pay. In effect, if a person has poor credit, they can sign a loan together with a parent, sibling, or friend who acts as the guarantor. Should the main signatory fail to pay the loan, the guarantor is liable to pay the balance of the loan. These loans are usually unsecured and often include very high APRs.

In conclusion, the market for personal loans is strongly favorable to borrowers, making now a good time to borrow money. However, for those that dont meet the requirements for a personal loan, there are other reasonable alternatives available.

Sam, the author, has been trying to compare loans to get a better understanding of all the options available.

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