Loan rates coming down

7 August 2009

Loan rates look set to be on their way down but the best deals are being reserved for existing customers.

According to uSwitch, there is a growing trend among lenders to offer existing customers preferential rates.

Nationwide is the latest one to jump on the bandwagon by reducing its personal loans rate to 7.7% APR - making it the cheapest rate available on the market - for loans between £5,000 and £14,999 for its current account customers. 

The low rate applies whether the loan is taken out through branch, telephone or internet.

To qualify for the loan rate, current account customers must have a monthly turnover of at least £750, and the offer only applies to new Nationwide personal loan customers.

Chris Rhodes, product and marketing director at Nationwide, says: "We are rewarding our current account customers with the lowest personal loan rate in the UK which underlines further the benefits of taking out and using a Nationwide FlexAccount. This will be the first of many offers for Nationwide current account customers over the coming months."

There are currently 13 loan deals available for existing customers at an average APR of 8.5% compared with an average of 9.2% for deals targeted to new customers. 

Louise Bond, personal finance expert at, says: "At the moment, loyalty really is king and many consumers could find a preferential loan rate with their existing provider. It's definitely worth finding out what they can offer you before you search the rest of the market."

But while the lowest rate might be at the forefront of your mind when shopping for a personal loan, there are several other important factors you should also consider.

This is because the features of a loan could have a huge bearing on how it affects your overall finances. Here are some of the things you should think of before signing on the dotted line:

Interest rates

The majority of personal loans offer fixed interest rates so your monthly repayments will stay the same for the duration of the debt. The most important rate to look out for is the Annual Percentage Rate (APR) as this will take into account the interest on a loan plus any additional charges making it easier for you to compare products like-for-like.

Remember that you might not get the typical APR advertised by a loan company - this is the best rate it will offer so if your credit rating doesn’t come up to scratch then you are likely to be offered a higher rate.

Credit checks

When you apply for a loan the lender will check your credit rating to see your history of borrowing and repayments, and help it decide your level of risk. The riskier it thinks you are the more interest you are likely to have to pay, so having a clean record really does pay off.

Your credit report will include the balance, credit limit and payment history of all your outstanding accounts, as well as settled ones that are less than six years old.

Before applying for a personal loan it is well worth checking your credit rating - if there are any black marks and your application is rejected then this will deteriorate your rating even further.

Checking your credit can also reveal any mistakes or fraudulent activity.

If you do have a chequered credit record then there are steps you can take to improve your rating.

For example, ensuring you are on the electoral role or paying off existing debt will both improve your profile.

Penalties and payment breaks

Some loan companies will charge you a penalty if you want to pay off your debt earlier than originally agreed. However, early repayment charges are only permitted on loans of £25,000 or less with more than one year left on the term. If you are due to pay off your loan within the next year then you will not have to pay a penalty.

Another thing to consider when shopping for a personal loan is whether you might want to take a deferred payment - this is a break between when you first receive the loan and when the first repayment needs to be made. Some loans also offer payment breaks to give you a month off meeting a repayment.

However, bear in mind that interest is charged over any payment break period.


You can opt to take out payment protection insurance (PPI) alongside your personal loan, either directly from the lender or from another provider. However, this insurance is not compulsory and might not be the right thing for you.

PPI will cover your repayments should you be unable to work because of unemployment, accident, sickness or even death.

If you are considering taking out PPI then make sure you read the small print - the policy might not be suitable for your needs meaning you are paying for nothing.

PPI is currently being investigated by the Competition Commission amid concerns that many consumers are being sold policies that are not suitable for them.

Many PPI policies are added to the loan, meaning the interest you pay include the loan amount as well as the cost of the insurance. This can be extremely costly adding hundreds or even thousands of pounds to the cost of a loan.

However, if you do decide to plump for PPI, then it is essential you shop around - 80% of PPI policies are sold by bank providing the loan but research suggests that buying from a direct provider is the cheapest way to insure your repayments.

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