| Last week Nationwide increased its personal loan rates by a full 1%, even though the Bank of England's base rate fell just a couple of weeks earlier. Black Horse has increased rates for some smaller loans by an eyewatering 11.0%, while NatWest has upped rates on larger loans by 1.5%, adding £1,015.20 to the total cost of a £25,000 loan over five years.
Others to increase their rates in the last few weeks include Barclaycard, by 0.5%; Lombard Direct and AA by a full 1%; NatWest by up to 2.5% and Tesco Personal Finance by 0.6%. At the same time Barclaycard has withdrawn its Masterloan product, which once topped the best buy tables.
However, while some providers had introduced double-digit increases, others have actually reduced the interest rate they charge. It's not all bad news, some lenders have in fact bucked the trend and reduced rates in the last few months.
Moneyback Bank, Britannia Building Society, Yorkshire Bank and Clydesdale Bank have all reduced selected loans rates since the beginning of the year. In fact anyone looking to take out a £5,000 loan with Yorkshire Bank or Clydesdale Bank will have seen rates reduced by as much as 7%.
You might not think that being fussy about who you get your loan from makes a lot of difference, as long as you can afford the monthly payments - but look at it another way. If you borrowed £10,000 over five years it would cost you £196.56 a month with Moneyback Bank, £209.91a month with Egg and £216.65 a month with NatWest. An extra £10 or so a month might seem affordable, but when you add the extra that you will pay over the period of the loan, the cheapest deal saves you more than £1,200 compared with the most expensive one. Who would turn down a free gift of more than £1,000 simply for shopping around? You might be able to get some extras on that new car you have had your eye on.
Getting the right deal can really matter when you are looking for motor finance. According to research, nearly a quarter of the total amount spent by car purchasers on a new vehicle comes from loans. Customers are used to haggling over the price of the vehicle, but they should be equally choosy about where they borrow - and finance available on the forecourt will rarely be the best option.
Our latest research reveals that the number of people looking to buy a brand new car has dropped by more than half a million on the previous six months. Clearly people are more concerned about their finances, and those looking to finance their purchase through a loan need to make sure they shop around to find the best deal for them.
So how do you go about choosing a personal loan?
Shop Around
Don't just assume your bank - or, in the case of car finance, the dealer - will make the best offer. Your starting point should be our website. Make sure you do not apply for more than one loan at a time because, if you make several full-scale applications, they will show up on your credit record and could indicate multiple refusals, harming your record for the future.
Don't be lured by the headline rate
This may not be the rate you are offered. Very few lenders offer one-size-fits-all loans - an exception being Nationwide. Most lenders use "risk-based pricing" which means the rate you are offered will depend on your credit score.
For example, Yourpersonalloan.co.uk, part of the Co-operative Bank, and Moneyback Bank, part of Alliance & Leicester, both offer loans at an extremely attractive 6.9%, but both banks will look at your credit rating before determining the rate at which they are prepared to lend to you.
Check what the rate quoted includes
The rate you are eventually quoted will be the APR (annual percentage rate), a way of working out the total charge for credit. The figure includes the amount of interest you pay and most other charges, such as arrangement fees and annual fees. However, the APR does not tell the whole story, and it won't include all the potential charges you may incur, such as early repayment charges.
To be able to compare the price of a loan, make sure you ask for the figure for the total cost of the loan over the full period. Also, take into account early redemption fees if you think you might want to repay the loan early.
Work out how much to borrow
While you should aim to borrow no more than you need, do watch out for "tiers". Interest rates are usually higher for smaller loans.
Black Horse, for example, now charges 27.9% on a £1,000 loan over one year, but only 16.9% on a £7,500 loan over five years. That said, Yourpersonalloan.co.uk could charge you just 6.9% for the latter deal if you met its strictest lending criteria. But then again it won't lend you less than £5,000, so is no good for borrowers who only need to borrow a little. Nationwides 8.9% becomes 15.9% on amounts under £5,000. Under £3,000 the rate is 17.4%.
Consider the term
Aim to repay the loan as quickly as possible (although watch out for early repayment charges). Lenders often charge lower interest rates if you pay back the loan over a longer period. This might make the loan seem more affordable on a monthly basis, but remember that the longer the term the more interest you will pay in the end.
Payment protection insurance?
This is supposed to meet your loan repayments if you are unable to do so because of accident, sickness or redundancy. Only you can decide whether you need this type of insurance. While it is hard to say that you should never buy it, you should certainly be careful about what you are buying. This type of insurance is full of get-out clauses and generally won't cover the self-employed.
While you may think you need this in an uncertain economic climate, don't be bamboozled into taking it out unnecessarily - policies have a very poor payment record. Dont take out insurance with your lender without checking if you could get a better deal with an independent provider.
What happens if you change your mind?
Unless you signed up for the loan in the lender's office, known as a Premises Agreement, there will be a cooling-off period of around two weeks in which you can cancel the agreement without charge.
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