Jun 12 2008
EVERYONE is worried about the rising cost of credit - apart from the banks and building societies raking in the profits.
The Bank of England may have reduced their base interest rate twice this year, but lenders have been paying little heed to this signal to cut rates. In fact, many have increased the amount they charge.
It is still possible to borrow at a low rate, but you need to know where to look. And that may mean choosing a credit card rather than a personal loan.
Moneyfacts.co.uk analyst Michelle Slade points out: "It's not only mortgage rates that continue to increase, so too have the rates and monthly repayments on personal loans.
"Since the beginning of the year, more than half of lenders offering personal loans have made changes to their rates."
For example, back in January, Black Horse charged 16.9 per cent interest to lend £1000 over 12 months. This has now leapt to 27.9 per cent.
If you want to borrow a substantial sum, such as £10,000, a personal loan may still be the cheapest way.
Your Personal Loan, Moneyback Bank, Sainsbury's Bank, Barclaycard and Tesco Personal Finance all charge less than 7.5 per cent annual interest on debts this size.
But if you are looking for a smaller amount - or have a couple of thousand of existing credit you want to transfer to a better rate - there are few cheap loan deals.
Only Your Personal Loan and Barclaycard will lend £5000 at under 7.5 per cent.
And if you want just a thousand or two, rates are even less favourable.
Abbey, at 7.9 per cent, is the sole lender charging in single figures for £1000 - the next lowest rate is a whopping 13.8 per cent from Barclaycard.
That's why, particularly for smaller amounts, borrowing on a low-cost credit card can work out far cheaper.
With long-term interest rates averaging 15.9 per cent, many cards are as costly as loans, but there are far better deals available.
There is no interest on purchases with Capital One Platinum for 15 months, with HSBC MasterCard for 12 months and Halifax All-in-One MasterCard for 10 months.
Others, including Lloyds TSB Advance, PayPal MasterCard, Barclaycard OnePulse and Bank of Scotland Plus, offer zero per cent on purchases for six months.
You can transfer an existing balance and pay no interest for between 13 and 15 months with Capital One Platinum, Virgin MasterCard, Egg Visa, Barclaycard OnePulse, Abbey MasterCard/Visa, Halifax Plus and NatWest MasterCard.