Lenders have massively hiked their rates on smaller personal loans, but not to worry – savvy customers can still get one interest free.
Bradford & Bingley is the worst offender, after hiking its unsecured loan rate for a £5,000 loan over three years by 3.2% to an eye watering 9.9%, meaning you’ll have to pay an extra £290 to your total payments.
“This week loan rates have taken a real battering, with a total of nine providers hiking interest rates on some tiers,” says Moneyfacts analyst Lisa Taylor.
“The last nine months has seen a steady increase in the rates available for unsecured personal loans, only four months ago sub six percent rates were available, whereas today you would be hard pushed to get your hands on a rate of less than 6.9%.”
Compare new purchase cards hereHow about a 0% rate Both Cheshire and Derbyshire Building Societies have increased their lending rate on smaller loans by 3% to 9.9%, while Marks & Spencer increased its from 7.4% to 8.9%. Disaster-struck Northern Rock also got in on the act, hiking its rates by 0.5% 7.9%
Lenders have always charged higher rates of interest on small amounts of money in order to make them profitable, but these latest hikes mean they’re no longer a bad deal - they’re a blatant rip off.
So how does an interest free loan sound instead? While credit cards generally charge rates much higher than those for unsecured loans, there are a host of cards on the market offering lengthy interest free periods when you sign up.
By switching diligently from one to the next before the introductory rate expires, you will be able to avoid interest altogether. Admittedly you will still incur a transfer fee of between 1.5% and 3% whenever you switch providers, but you’ll still save over £600 on a £5,000 three-year loan.
Compare new purchase cards here
| Type of credit | APR | Monthly payment | Total Bill |
| Bradford & Bingley | 9.9% | £160 | £5,764 |
| Sainsbury’s credit card | 5.9% | £152 | £5,467 |
| Credit card switching | 0% | £141 | £5,102 |
£5,000 personal loan over three years
Paying interest is optionalHere’s how to do it. The best card to start with is the
Halifax’s Purchase card, which offers 15 months interest free. When that card is about to expire, transfer the balance to a
Virgin Mastercard, which also offers 15 months interest free and charges a 3% admin fee. Finally, switch to a
Capital One Platinum card for the remainder of the loan, which only offers 12 months interest free, but comes with a lower 1.7% fee.
Do this and your total bill comes to £5,102.09, with monthly payments of £142. Compare that to the £5,764 charged at Bradford & Bingley and it’s clear that the small effort entailed in switching pays off in a big way.
For those who couldn’t be bothered switching, you could still save a lot of money by making your purchase and then transferring the balance instantly to a credit card offering a life long low rate, such as
Sainsbury’s Standard credit card, which charges 5.9%. Do this and your total bill comes to £5,467.
Not quite as cheap as before, but it’s really simple.
Compare new purchase cards hereSwitching may get more difficultA word of warning though: It’s getting trickier to get for the credit card you want, due to a combination of lenders being scared by Northern Rock’s implosion and new banking legislation. Read more about it
here.
But provided your credit rating is good, you shouldn’t have too much of a problem. So when the next unexpected outlay comes up, don’t get ripped off with a personal loan. Remember paying interest is optional.
Click here to compare new purchase cards
