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Personal loan rates on borrowing £10,000 hit 10-year low

Britons looking to borrow to fund a new car, home improvements or a big life event like a wedding will now find taking out a substantial sum is the cheapest it’s ever been.

A personal loan of £10,000 paid back over five years came with an average APR of just 4.5 per cent this month, down 0.2 percentage points from November, data from Moneyfacts shows.

Five years ago in December 2014, the average rate was 5.7 per cent, while a decade ago it was 9.5 per cent.

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This means borrowing £10,000 and paying it back over five years would now cost you £1,161.20, £315 cheaper than it would have been in 2014.

The falling of personal loan rates is a rare recent piece of good news for those after credit, as banks have recently announced overdraft hikes to nearly 40 per cent and credit card providers reduce the generosity of their deals.

The average credit card APR now sits at 25.1 per cent. If you had £2,500 on a credit card with that APR, and paid off £100 each month, it’d take you two years and 11 months to repay the balance in full and you’d incur £911 in interest.

And while the average personal loan rate is 4.5 per cent, five providers will lend you £10,000 over a five year period at a rate below 3 per cent. 

They are Cahoot, Nationwide Building Society, John Lewis, Sainsbury’s Bank and Tesco Bank.

Cahoot offers the cheapest rate of 2.8 per cent, meaning it’d cost you £718.40 over the length of the loan.

Meanwhile the cheapest credit cards at the moment all cost you more than double 3 per cent. Co-op Bank offers the lowest APR, 6.9 per cent on its 3-year fixed-rate Visa. 

How personal loan rates have fallen over the last decade 
Year  Average APR on a loan of £10,000 paid back over 5 years 
2009 9.5%
2014  5.7%
2016  4.9% 
2017  4.6% 
2018  4.7% 
2019  4.5% 
Source: Moneyfacts

It is followed by TSB’s Advance Mastercard, which comes with 0 per cent on purchases for a three-month introductory period and has an APR of 7.9 per cent.

Rachel Springall, of Moneyfacts, said: ‘It’s encouraging to see that the unsecured personal loans market is still buoyant, with rates falling over the past quarter. 

‘This improvement to the loans market could be encouraging for borrowers considering consolidating their debts either now or in the New Year.’

Given the term length and the amount you can borrow, personal loans are likelier to be used for purchases like new cars – as an alternative to car loans – or for one-off purchases, or even as consolidation loans to pay off existing debt.

They might also be popular among those who, rather than move home due to election and Brexit-related instability, are instead choosing to make big improvements to where they live at the moment.

In that sense, given the amount of capital required to undertake such projects, personal loans are probably the cheapest source of funding.

Finally, the cheap rates also might make personal loans a more appealing alternative to car finance options, if you’re accepted for one.

For example, a £15,995 new Ford Fiesta would cost you much less using a loan from Cahoot than by using Ford’s own car financing.

A new Ford Fiesta would cost you £15,995, but drops on personal loan rates mean it'd be cheaper to use them than Ford's own financing

A new Ford Fiesta would cost you £15,995, but drops on personal loan rates mean it’d be cheaper to use them than Ford’s own financing 

Purchasing a Ford Fiesta over 48 months using Ford's Acquire financing would give you an APR of 7.4%. The cheapest personal loan on the same sum over the same period is just 2.8%

Purchasing a Ford Fiesta over 48 months using Ford’s Acquire financing would give you an APR of 7.4%. The cheapest personal loan on the same sum over the same period is just 2.8%

Ford’s Acquire financing, which requires you to put down a deposit and make monthly payments in order to own the car, would cost you £2,130.45 over the course of 48 months when combined with a £1,000 deposit on a new Ford Fiesta – a rate of 7.4 per cent APR.

You would therefore end up paying just over £17,000 for the car.

Meanwhile using Cahoot to borrow £16,000 over the same 48 month term would see you pay just £919.52 on top of the repaid amount.

Rachel added: ‘While the lowest loan rate is less than 3 per cent, it is important borrowers are aware that as only 51 per cent of successful applicants need to be offered the advertised APR of an unsecured personal loan, these are not guaranteed. 

‘To assist borrowers, it would be wise for them to check their credit report before applying and check it for any errors.

‘Borrowers looking to take advantage of the lowest rates may only be able to apply online or by phone. 

‘It is unlikely that they will find rates any lower with their existing high street bank, so it’s important to consider alternative brands for an unsecured personal loan.’

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