Although the Bank of England has left the base rate at 5.75 for the past week, personal loan lenders have had to increase their interest rates dramatically to deal with the current credit crunch that is plaguing the UK. According to the Bank of England, interest rates have risen by almost 25 per cent in the past year. While some lenders, such as Bradford&Bingley, have attempted to freeze interest rates on personal loans at a manageable level in recent months, they have now had to lift the freeze and raise rates. This is due to the five interest rate increases in the last year and the increase in borrowing costs because of the tumultuous financial markets. These increases will only affect new personal loan borrowers; those already tied into an interest rate will remain unscathed by the interest rate hikes.
All of the interest rate increases are being blamed on the uncertainty surrounding the financial markets, the increasing levels of debt, and the past year of rate rises. All of these factors are putting increasing amounts of pressure on individuals' and families' disposable income. Because of the strain being put on people's finances, it has become riskier for lender to do business, hence why they have had to raise rates.
While all of this information paints a grim picture for all of our financial futures, there are ways in which you can work with your finances to decrease the amount of stress put on you. Here are a few suggestions to help you through:
- If you need to take out a personal loan, shop around to find the one with the lowest possible rate. Finding the best rate could save you hundreds of pounds in interest charges over the term of your loan.
- Instead of using credit to buy things now and pay later, try to save up for major expenses. This will decrease your overall expense because you will not be stuck paying interest charges if you make your purchase outright.
- Take some time to make a budget. Find out where your money is going each month, and do your best to find ways to decrease spending on unnecessary items.
- Start reducing your debt as soon as possible. Interest rates are not expected to decline any time soon, so it's best if you attempt to rid your self of as much debt as possible, as soon as possible. Start with debt with the highest interest rate, and work your way down.
- Once your debt is clear, try hard not to take out any more loans or buy anything else using credit. With hire purchase, credit cards and loan advertising everywhere, living within your means is a hard decision to take, but one that will have great long-term benefits for your finances.