Best personal loan rates now under 4.5pc

Amid the news of High Street lenders charging obscene interest rates, a flurry of new lows have been announced in recent weeks with concern to personal loan rates. Competition between banks is actually benefiting consumers for the first time in a long time.

Several new low rates have been announced by some of the household names in the UK. These include Tesco Bank (4.1pc), M&S Bank (4.2pc), Clysdale Bank, Yorkshire Bank, Sainsbury Bank (all 4.3pc) and Barclays (4.5pc). The offer that is sparking the biggest attention though is HSBC, which earlier in July announced a new special personal loan rate of just 3.9pc.

Before you drop everything to go borrow money, understand that the best rates are only extended to the best borrowers. That means those with impeccable credit ratings and consistent earnings will be the ones most likely to be approved.

51pc rule

Lenders are supposed to ensure that any rate listed is available to at least 51pc of applicants. The rule is designed to ensure that lenders aren’t playing unfairly by advertising rates that only Sir Richard Branson would be approved for.

So are lenders adhering to these guidelines? Not particularly. There are exclusions that allow a lender to only extend the offer to 51pc of approved applicants. Anyone screened out due to credit issues or denied prior to the credit check would not necessarily count towards that 51pc requirement.

According to The Telegraph, a full 90pc of applicants were being denied these best rates. The best guidance advises against even applying for these best rates unless you are sure that you meet the highest loan qualifications.

So does this mean that the major lenders are behaving unfairly? In all likelihood there have been some instances of malfeasance. Yet the Financial Conduct Authority has yet to cut its teeth on this aspect of consumer lending. Experts say this increased scrutiny is coming though.

Record low rates

As record low rates are being offered by more lenders on unsecured personal loans, many consumers are tempted to turn to these products as an unusual financial alternative. While these best rates are still slightly higher than mortgage refinance rates, there is no collateral required. Loans of up to £15,000 are being offered without any security guarantee, making it a reasonable alternative to cash out remortgages.

You could even use it to buy a car or pay off credit card debt, although many credit card products are offering promotional rates of 0pc for up to 21 months. It may even be possible to use it as an alternative to trading securities on margin. Still, these alternative uses can be risky.

As is normally the case, record low personal loan rates come with a “buyer beware” caution. Applying for multiple personal loans can cause reductions in credit ratings. If you do apply for one of these low rate offers and are declined, you might be best served with a cooling off period of a few months. If you are not declined outright, the approval might carry a higher interest rate than what you initially pursued.