You might not have thought it possible, but the cost of borrowing has been getting even cheaper.
In the wake of the credit crunch and financial crisis the Bank of England slashed the base rate in a bid to breathe life into the struggling UK economy – and the cost of loans, mortgages and even credit cards fell dramatically.
Rates go even lower…
But in recent months, and with the prospect of a base rate increase appearing as distant as ever, borrowing rates have managed to fall further still.
For example, two-year fixed-rate home loans are now available at less than 1.2% interest a year, while a number of credit card providers are offering the opportunity to transfer an existing debt and pay no interest on it for three years. Meanwhile, in the personal loan market, APRs (annual percentage rates) on some deals have dipped below 4%.
But for how long?
How long this current state of affairs will continue for is anyone’s guess: since the start of the decade, barely a month has passed without one expert or another predicting an “imminent” base-rate hike.
Thus far, however, the conditions – initially, a weak domestic economy and more recently, the risk of a new global slowdown caused by falling demand in the Far East – have meant no change in the status quo for more than six years.
But if you are considering making a big purchase in the coming months – a new car say, or some serious home improvements – it is worth considering striking while the iron is hot when it comes to financing your plans. After all, there are no guarantees that today’s low rates will still be available come next spring, say.
Preparing to take a loan? Check your credit score
If you do decide to make a loan application, the first step should be to ensure that your credit record is in decent shape. Lenders will offer their best rates to consumers who have a history of borrowing and repaying diligently, but those who have a flag or two on their credit files can expect to pay more – or even to be turned down altogether.
A good way to get your hands on your credit record is by using a new service called ClearScore: this will give you a mark out of 700 showing how creditworthy you are, as well as tips on how to improve your rating if necessary. In some cases, this can be as simple as correcting a clear error on your report.
Working out how much you want to borrow
The next step is to work out how much you want to borrow and how long you want to have to pay the loan off. In fact, the best rates tend to be available on larger sums – so the APR on a £3,000 loan is likely to be higher than that on an advance of £7,500 or £15,000, for example.
And at present, interest on loans repayable over two or three years is generally lower than on deals which run for one, four or five years. Bear in mind, though, that the shorter your loan term, the less you will probably pay in total interest. The fact is that no one knows when rates will start heading up again – so if you are going to need credit soon, now could be the right time to act.