unsecured personal loan

Since January, the average rate on a £1,000 unsecured loan has risen by a massive 1.6% - adding £27 to the total cost if repaid over three years.But those wanting to borrow more than £20,000 will actually have seen rates drop. Three months ago, the average for this amount was 8.1%, and has fallen to 8%.

The cost of an average £2,000 loan has risen by 0.8% since January, and a £3,000 loan has gone up 0.5%.Julia Harris, from financial data expert Moneyfacts, says: ‘The ongoing credit crisis has seen institutions concentrating on getting money in the door and becoming more expensive and selective when lending money out.’

The hike in loan rates is even more marked if you compare the situation today to a year ago - when the Bank of England base rate was the same as now.The rate on a £1,000 loan has increased by 4.6%, while 3.9% and 3.8% have been added to loans of £2,000 and £3,000 respectively.

Even loans of more than £20,000 have seen hikes of more than 1%.However, the best borrowers with good credit scores can still get some decent personal loan rates.For almost six months now, Moneyback Bank, part of Alliance & Leicester, has been riding high at the top of the best-buy tables.

It is offering a typical rate of 6.7% on a £5,000 loan repaid over three years - giving a total cost of £5,520. You can get the same rate if you want to borrow £10,000.

It also found that the majority of people (59 per cent) use funds from either their current or savings account to buy a car.A fifth of drivers aged 17 to 24 have spent over £500 on upgrades for their car in the past year, while among all males drivers, modifying their vehicle’s engine was the most popular upgrade.

Women tended to opt for a new sound system or satellite navigation when looking at a possible upgrade - they were also likely to spend more on the work at an average of £617.More than half of the motorists surveyed said they would prefer to buy a second-hand car, which Halifax suggested may be because of the depreciation involved in buying a new car.

Of those not using a current or savings account to finance their next car, 18 per cent would use a bank loan to make the purchase.Neil Chandler, head of Halifax Unsecured Personal Loans, said: “Whatever your reason for taking an unsecured personal loan, with Halifax you’ll have no monthly repayments for the first three months.”

In other news, Halifax reported last week that 2007 had seen a record fall in owner-occupation in the UK.

Zopa, the social lending website launched there years ago, looks set to pave the way for a new type of lending as a report predicts peer-to-peer lending could account for a tenth of the personal loans industry in just two years. The enterprise, which was launched in 2005 by members of the team that set up Egg, has attracted more than £18m of backing and has more than 190,000 members in the UK. In the wake of tightening credit conditions, the enterprise revealed record number of people approaching to borrow money at an affordable and manageable level.

Since its launch, the enterprise has arranged more than £20m in unsecured personal loans in the UK and is preparing to launch in Japan, its fourth country after Italy and the US since it launch in the UK.The appeal of social lending was recognised in a report from research company Gartner, predicting peer-to-peer lending would represent 10 per cent of the personal loan market by 2010.

Giles Andrew, co-founder and managing director of Zopa, said: “With recent average returns for lenders the best they have ever been at 8.1 per cent, with some enjoying more than 10 per cent, social lending has never looked so attractive. Borrowers continue to enjoy rates normally much lower than they can get from the banks, and despite months of turmoil in the credit markets, our state-of-the-art credit and affordability checks have maintained our remarkably low default rate at less than 0.1 per cent.”

He added: “We are delighted to be celebrating our third party with news of our upcoming launch in Japan. We look forward to helping even more people around the world enjoy the big benefits of cutting out the banks by borrowing and lending with other people instead.”

There may have been some slowdown in collections, and recoveries were an issue for a month or two. Some banks may have temporarily exited small ticket loans, but there are some other players who are also looking at expanding or increasing their presence in the personal loan segment.” Budget 2008-09

Rating agency Crisil brought out a recent study in which it estimates gross non-performing assets  in retail loans to increase to 4 per cent over the next two years from 2.7 per cent as of March 2007-end.

The study noted that delinquencies in the personal loans , was expected to be 8 per cent to 13 per cent as against past levels of 5 per cent to 8 per cent.

Following a warning from the Financial Services Authority (FSA) last month that the days of cheap credit were over, research from the Moneyfacts confirms this to be the case.Average interest rates are now an average of 4.5 per cent higher than they were a year ago, for those borrowing the smallest amounts.

A borrower looking to take a £1,000 loan in March 2007 would have been hit with a rate of 14.4 per cent when it came to repayment – this has now increased to 18.5 per cent.The highest interest rate charged on a £1,000 loan was an incredible 27.9 per cent, offered by online borrower Black Horse.

Although rates among those borrowing more showed less dramatic increases, there was still an upward trend.A customer borrowing £5,000 would have secured an average repayment rate of eight per cent during March 2007 – this has now increased to 10.1 per cent, a rise of 2.1 per cent.

“Anyone looking to take out a loan in 2008 is going to find themselves faced with having to shell out more by way of monthly repayments than they would have done over the last couple of years,” said Michelle Slade, analyst at Moneyfacts.

“The ongoing credit crisis has seen institutions concentrating on getting money in the door and becoming more expensive and selective when lending money out.”Those borrowing the greatest amounts have seen the most modest increase in repayment rates.

Secured loans have also been feeling the pinch, with eight lenders - including Alliance & Leicester, Money Partners and Picture Financial - all ceasing to offer secured loans in the last few months.In line with the mortgage market, the amount lenders are prepared to offer has also been cut, with 125 per cent loan-to-value deals disappearing altogether.

Unsecured personal loans

“In the last year rates on unsecured personal loan interest rates have continued their upward trend. Average rates for all loan amounts are now up to 4.6% higher than they were in March 2007.

“Smaller loans have seen the most severe increases. Twelve months ago, the highest rate for loans of £1K to £2,999 was 19.9% on loans from Marks & Spencer Money, Sainsbury’s Bank and Britannia BS. In March 2008, the highest rate has surged to 27.9% with the online loan from Black Horse.

“Rates for larger sums have not escaped the rate hike, although the increase in rate for borrowing in excess of £3,000 has been less severe. In March 2007 Masterloan was offering rates of 5.9% for loans of £4K to £15K. Now the best deal available is 6.7% from Moneyback Bank on loans of £5K to £15K.

“Anyone looking to take out a loan in 2008 is going to find themselves faced with having to shell out more by way of monthly repayments than they would have done over the last couple of years. The ongoing credit crisis has seen institutions concentrating on getting money in the door and becoming more expensive and selective when lending money out.

“In May 2006 Northern Rock was offering rates of 5.6% for all loan amounts. This means that consumers taking out a £25K loan now compared with then will be paying a staggering £1,655 more.

“As with all other areas of the lending market, banks and building societies will have been reviewing and tightening their lending criteria. With 97% of loans offering typical or personal pricing, consumers with less than perfect credit scores may find themselves offered rates higher than those advertised, or declined completely.

Overall loan growth in India, which has been on a downtrend since peaking at almost 40 per cent in early 2006, has slumped to about 20 per cent this year due to real lending rates that are among the highest in Asia at about 7 per cent, according to Credit Suisse.The slowdown has been felt most acutely in what was formerly one of the sector’s fastest growing segments - personal unsecured loans, which include credit cards and micro “small ticket” loans. The small ticket loans form what analysts have loosely labelled India’s “subprime” segment.

“The balance sheet is still performing well but delinquencies [of personal loans] have been higher than one would have anticipated,” said Sanjay Nayar, chief executive of Citigroup in India.Citigroup does not disclose details of its non-performing loans in India but Mr Nayar said it was rejigging some of its operations to better target India’s emerging middle classes.

According to uSwitch, the average car dealer loan charges around 9.88 per cent APR - up to three per cent more than the best unsecured loan deals on the market.To illustrate the savings to be made, uSwitch cited the example of a buyer borrowing £10,270 towards a VW Golf priced at £11,411.

If the buyer contributed a deposit of £1,141, the 9.4 per cent APR offered by Carselect would see him pay £2,162 in interest over three years.However, if they had opted for a personal loan from Moneyback Bank, with an APR of around 6.7 per cent, they would pay just £1,068 in interest.

Searching for the best unsecured loan deals is especially prudent when buying a new car, according to Mike Naylor, head of personal finance at the site.He said: “Brand new cars are already a big expense but consumers can unwittingly inflate the purchase price by up to £1,100 by choosing the wrong finance deal.”

In what appears to be a complete u-turn from last year’s heavy selling of zero deposit home loans which saw a third of lenders offer mortgages of 100 per cent or more, four of the biggest lenders have withdrawn their deals.

The knock-on effect of the global credit crunch, coupled with a stagnant housing market, has seen both Alliance and Leicester and Abbey pull the plug on their contentious 125 per cent deals, leaving newly nationalised Northern Rock as one of the only lenders still offering this type of loan.

The 100 per cent plus mortgages grew in popularity during last year’s property price boom when desperate first time buyers and cash-strapped singles opted for the so called ’super-size’ mortgages to help cover legal fees and stamp duty.

The mortgages offer up to 95 per cent of the value of a home as a standard mortgage, as well as a further 30 per cent on top as an unsecured personal loan , capped at either £25,000 or £30,000. However, while these monster mortgages have helped many borrowers get onto the property ladder, they are instantly plunged into negative equity owing more to their lender than their homes are worth.