Loan rates falling as base rate cut approaches

By Joel Stanier

A number of personal loan providers have slashed interest rates in recent weeks - perhaps because the Bank of England is expected to cut the base rate in the not-too-distant future.

Several lenders now offer loans at less than 6% interest - including Derbyshire Building Society (5.8%), Tesco Bank (5.9%) and Sainsbury's Bank (5.9%). Only a few weeks ago the lowest personal loan rate stood at 6.1%, and this figure has been steadily decreasing for some time now.

It means that borrowers could benefit from lower monthly payments than they would have paid only a few weeks ago. For example, a loan of £10,000 repaid over three years would cost £303.31 a month at 5.8% interest, compared with £304.67 at 6.1%. Although that may seem like a small difference, the overall amount of interest paid would be reduced by almost £50.

More significantly for the economy, it could encourage more people to borrow and therefore spend more money - which could help to push the economy out of the current recession.

It's possible that lenders are cutting their rates ahead of the expected base rate cut by the Bank of England. The base rate indicates how much it costs lenders to borrow the funds necessary for offering loans, and lenders may be cutting loan rates early to get a competitive head-start.

According to Thisismoney.co.uk, the general consensus amongst market experts is that we will see a base rate cut to 0.25% - a new all-time low - by early 2013.

That's good news for borrowers - and it's all the more reason for people to shop around, says a loans expert at Think Money. "Now could be a good time to buy that car or holiday you've been thinking about, if you're planning to pay for it with a personal loan. We're currently seeing some of the lowest rates in years, which means lower monthly payments. It's well worth comparing deals from lots of lenders before you go ahead, rather than just borrowing from your usual bank.

"Of course, people should only borrow as much as they're sure they can comfortably afford to repay. If you have any doubts, you may want to consider borrowing less, or saving up instead."

Image © rangizzz - Fotolia

Tags: loans, personal loans, interest rates, Bank of England, borrowers, economy, recession

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