Those looking to borrow to fund home improvements might not be able to take advantage of an interest-free advance from Conservative Party HQ, but they can benefit from a recent fall in loan rates.
Despite the ongoing pandemic, banks and other lenders have cut borrowing rates since January, with lower-value of loans of between £5,000 and £7,500 seeing their cost reduce by the most.
The average cost of borrowing £5,000 has fallen from 7 per cent last April, and 7.2 per cent at the start of this year, to 6.9 per cent this month, according to figures from Moneyfacts.
That is the lowest they have been since September 2019, and close to the all-time low of 6.7 per cent seen in January two year’s ago.
Prime Minister Boris Johnson’s renovation of his Downing Street flat is being investigated by the Electoral Commission
While rates on borrowing £10,000 have not fallen by as much over the last year, and are 0.2 percentage points higher than last April, personal loan rates on £10,000 are still at close to all-time lows.
They now sit at 4.4 per cent on average, with rates as low as 2.8 per cent. This is Money reported in December 2019 that with rates on loans of £10,000 at 4.5 per cent on average, it was the cheapest time ever to borrow £10,000.
They hit a new low of 4.2 per cent last April, down from 9.9 per cent in December 2009 and 5.7 per cent in December 2014.
Borrowing £10,000 from Cahoot and paying it back over five years at a rate of 2.8 per cent would see an overall repayment of £10,718.40. MBNA, M&S Bank and John Lewis also offer rates of below 3 per cent.
Moneyfacts’s Rachel Springall said: ‘Generally we are seeing more reductions than rises. Unsecured personal loan lenders clearly still have appetite to lend at the moment.
‘Typically, lenders would re-price higher based on risk to take on new debt.’
There are now 34 lenders offering 43 loans, per Moneyfacts’s figures, slightly below January 2020 levels when 36 lenders offered 46.
|Month||Average rate on £5,000 loan||Average rate on £10,000 loan||Number of lenders||Number of available loans|
Banks which have reduced their loan rates since January include Metro Bank; JN Bank, a relative newcomer based in Brixton; Virgin Money and Sainsbury’s Bank.
TSB have upped theirs, while M&S Bank have increased rates on very low-value loans of between £1,000 and £5,000 and on borrowing more than £15,000.
However, Springall noted that ‘lenders only have to offer advertised rates to 51 per cent of successful applicants.’
Unsecured personal loans are an often-popular choice for those looking to fund large purchases like a new car or significant home improvements, although comparison site MoneySupermarket cautioned against using them for major structural works like a conservatory or loft conversion.
‘These jobs tend to take a lot of money and time, and a sufficiently large unsecured loan may not be available’, Jo Thornill, from the site, said.
Boris Johnson and his fiancee Carrie Symonds spent as much as £200,000 doing up the flat above 11 Downing Street, according to reports
Interest in home improvements and DIY has boomed over the last 12 months as Britons have spent far more time stuck inside during the pandemic and many have had more money to fund them.
Rachel Springall added: ‘Unsecured personal loans are an ideal choice for consumers who want to know exactly how long they have before their debt is repaid as they provide a simple fixed repayment plan.’
And while they charge interest, they are unlikely to lead to someone renovating their flat being investigated by the Electoral Commission, which happened to Prime Minister Boris Johnson on Wednesday morning.
Jo Thornhill added: ‘When a home renovation goes right, few things are more satisfying. But when they go wrong, they can be a major source of anxiety – just ask the Prime Minister.’
He is accused of failing to disclose the fact Conservative Party funds were initially used to pay for the renovation of his Downing Street flat, which he subsequently forked out for.
Personal loans from banks are often available on sums of up to £25,000, and for as little as £1,000.
However, those borrowing smaller sums might be better off with an interest-free credit card. They can make the purchase upfront on a card and then transfer it over to a 0 per cent balance transfer deal and pay it off over as many as 29 months.
Alternatively, they could take out an interest-free purchase credit card with a term of up to 20 months and pay it off without incurring interest.
Before applying, prospective borrowers can run soft searches which see how likely they are to be accepted for a loan without running a formal check which could damage their credit score, although it may not show the rate they will ultimately have to pay.
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