Efficiency is the key to keeping
your finances in a healthy state of organisation. But it
doesn't always pay to be too efficient, especially when it
comes to finding the best interest rates on personal loans.
If you were quick off the mark
last month, when the Bank of England (BoE) cut its base rate
by a quarter of a per cent, and switched lenders to get a
cheaper loan, you may have lost out on some even better
borrowing deals.
The reason? Well most lenders
took a while to decide how to react to the BoE's decision, and
didn't automatically pass on a lower rate to their borrowers.
Instead, many banks and
building societies thought about it for a bit. Then they
waited to see what each other's next move would be. And after
that, they thought about it a bit more. And it's really only
now that we, Joe Public, can actually see the true knock-on
effect reflected in loan rates up and down the high street.
To give you an example, when
the rate cut was first announced, Lombard Direct dropped its
standard loan rate from 8.4% to 7.9%. A pretty good reduction,
you might have thought, traded in your old loan and took
advantage of Lombard's new rate.
"Must have" deals
But while you've been
congratulating yourself on your swift action, Lombard has
been, well, thinking about things a bit more. And reached the
conclusion that it should make further reductions. Its
standard loan rate is now only 7.4%. And it's internet only
loan has also dropped from 6.9% to 6.7% during the last month.
Now this hasn't been the case
for most of the big lenders, who have maintained their rates,
regardless of their competitors. Abbey National's Internet
Abbeyloan is still offering a lowest rate of 6.9% for amounts
exceeding £5,000, and Cahoot¹s Flexible Loan rate of 7% for
loans between £500 and £15,000 has also remained static.
The same goes for the AA,
whose internet only product for £5,000 or more is 7.3%. "Our
interest rates aren't governed by what the Bank of England
does," says the AA. "Personal loans aren't like mortgages,
where the rates quickly change. Loan rates tend to stay the
same." Not if you're the Co-operative Bank, they don't,
because their internet only rate has come down in the last
week from over 8% to an extremely competitive 6.7%. And
Norwich Union has followed suit by offering an internet only
loan of 6.8%.
Now is the time?
Which goes to show that if
you haven't started trying to improve your personal loan rate,
this might be the time to start. Still not convinced? Then you
may be motivated by Intelligent Finance, which reckons that
borrowers loyalty to their existing bank is doing nothing but
lining the wrong people's pockets.
According to the bank's
research, misplaced trust is causing more than half of UK
adults to simply turn to their own bank for a loan, instead of
looking around for a better deal. "With unsecured personal
lending at record levels, personal loan borrowers across the
UK will lose out to the tune of over £1 billion in the year
ahead by saddling themselves with uncompetitive and inflexible
loans," says IF.
It cites HSBC (with a rate of
13.9%), Lloyds TSB (10.9%), RBS (15.1%) and Barclays (12.9%)
as the main beneficiaries of our lethargy when it comes to
shopping around.
But on the subject of low
loan rates, take heed of a warning from Egg, who believes that
some of these low rates are there merely to lure us in, and
very few borrowers are actually being offered anything near
them. And three quarters of applicants are not actually told
that their final rate depends on their risk status.
The bank asked 50 NOP mystery
shoppers to apply for a Lombard loan and not one was able to
report being offered the lowest advertised rate of 6.9% (prior
to the latest cut). In fact the rate offered varied from
between 7.9% and 23.9%, with an average rate of 8.5%. Abbey
National fared little better, offering only 4% of prospective
borrowers its lowest advertised Abbeyloan rate. The average
rate offered was 8.1%.
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