A report from Moneyexpert.com says that rates on personal loans are set to increase despite the Bank of England cutting interest rates 3 times in the last 6 months. The report indicates that unsecured loans of £5,000 and £7,500 have increased by up to 1 per cent in the past 6 months, regardless of the three rate cuts.

Sean Gardner, Founder of MoneyExpert.com said that “The Bank of England has a battle on its hands to restore confidence in the credit markets when lenders react to three rate cuts totalling 0.75 per cent by actually increasing rates,” and suggested that unsecured loans could go down the same route as mortgages in terms of general availability; “The unsecured loans market is almost mirroring the mortgage market where the issue is not so much rates but availability – whether or not lenders will let you have the cash.”

The report, however, does go on to say that; “it remains the case that creditworthy customers can still access competitive deals and borrowers should research the market carefully before making an application,” meaning that unless your credit rating is up the creek, then you should be OK. Still, it couldn’t hurt to do your homework – credit rating checks can be done online in a matter of minutes and if you do it properly, won’t cost you a penny.

This puts homeowners or those already with a mortgage in a position of financial strength as they can use their property as collateral and therefore enjoy more favourable rates as well as greater availability of credit – safe as houses, as the saying goes.

The MoneyExpert.com report also says how borrowing more will also see you paying less in the long term: “Lenders take the view that those borrowing more are generally a better risk than those borrowing less and offer better deals as a consequence.”

So conceivably, you could borrow a bit more than you needed in order to qualify for a better repayment rate, stick the excess in an ISA and comfortably repay the amounts each month whilst enjoying a lower rate, thereby avoiding bigger repayments and earning a bit on the side as well.

This entry was posted on Monday, May 19th, 2008 at 3:02 pm and is filed under Loans, Mortgages, Savings. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.