The latest quarterly Moneyfacts UK Credit Card Trends Treasury Report, which studies the UK personal finance market (unsecured personal loans, credit cards and overdrafts), highlights that average unsecured personal loan rates have increased, with the lower tiers particularly impacted over the last quarter.

In the past quarter, tiers to have seen average rates rise include the £3,000 over three years tier and the £5,000 over three years tier, which have both increased by 0.1% since December, to stand at 14.7% and 7.1% today. Concentrating on the £5,000 loan tier, there continues to be a notable rate gap between high street providers and other providers, where there is an average rate difference of 1.1%.

Eleanor Williams, Finance Expert at Moneyfacts, said “In the run-up to Christmas last year, some rate tiers had fallen, perhaps in an attempt to attract borrowers who were looking to consolidate their debts over the festive season and in the New Year. Disappointingly, those looking to do the same this spring will find that is has become more expensive, particularly if they are looking for a modest loan.”

“Consumers looking to borrow smaller sums would find it cheaper to take out a 0% balance transfer card if they are able to repay the debt before interest applies. Indeed, based on the longest interest-free balance transfer deal without an annual card fee, the top deal has a 29-month 0% offer, with a 2.74% balance transfer fee (subject to a £3 minimum), which equates to a cost of £137 on a £5,000 debt (Sainsbury’s Bank).”

“If borrowers decide to apply for one of the lowest rate loan deals today for the same £5,000 amount, this would be priced at 3.4% APR from Tesco Bank, which would see borrowers pay £262.12 in interest on their debt after three years. However, a loan would provide a clear set repayment plan, unlike with a credit card, where borrowers could have set a minimum repayment as default or adjust the amount they pay on a monthly basis. Still, it would cost more with the loan today compared to the top balance transfer card, which could save borrowers £125.12 if someone is able to clear their debt within 29 months.”

“Borrowers who would still prefer to use a personal loan regardless could save themselves unnecessary interest charges by looking away from the high street providers, as the average rate they offer sits at 7.8%, whereas other loan providers charge 6.7% – a difference of 1.1%.”

Unsecured personal loan market analysis
Average loan rates Mar-19 Dec-19 Mar-20
All lenders £5,000 over three years 6.8% 7.0% 7.1%
High street providers £5,000 over three years 8.2% 7.6% 7.8%
Other providers £5,000 over three years 5.9% 6.6% 6.7%
Source: Moneyfacts Treasury Reports