5000 Loan Guide

UK residents that have recently taken out a £5,000 personal loan to get themselves over the recession are being hit with the highest interest rates, the UK  base rate is currently just 0.5 per cent (next review 10 Sep ’09), however the average interest rate for a  £5,000 loan is currently 10.32 per cent, according to a survey by moneysupermarketdotcom.

It seems that ten is the magic number as the best value personal loans are for  £10,000 with interest rates at approx.  8.4% , while a £15,000 loan will be closer to 8.55 per cent.

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Payment Protection Insurance or PPI for short is offered with many personal loans, this type of loan insurance is designed  to cover your loan repayments if you become unemployed or can’t meet the repayments due to ill health, (it’s actually designed to make huge profits for lenders) however  the cover is nearly always expensive and wrapped up in terms and conditions that make it difficult to make a claim, the PPI industry is also notorious for mis-selling loan insurance.

A recent review of the PPI market for the OFT by the Financial Services Authority found that borrowers that take up personal payment protection suffer huge additional costs, for example, a £ 5000 loan over five years at 6.1 per cent APR actually had an interest rate of 22 per cent when payment protection insurance was factored in.  However lenders that want to push PPI must now show the whole cost including the insurance in their APR. The good news is that  from October 2010 the sale of PPI with  loans will be banned, until then just be careful what you sign up for.

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