The average rate is 8.36 per cent. This compares poorly to the base rate of 3 per cent – a 5 per cent premium.
In September, the gap between base rate and average loan was just 2.92 per cent.
Moneysupermarket.com carried out the research. Tim Moss, head of loans, said: ‘Loan costs are often overlooked in the frenzy of a base rate cut, when the focus is on the impact of any rate movement on mortgage payments and savings rates.’
‘What our calculations clearly show is that the cost of a personal loan is as apparently uncorrelated to base rate as mortgage rates are.
‘The key difference, though, is that mortgages are priced according to LIBOR rather than base rate – loan rates are not.’
Moss says the Competition Commission’s controversial findings on the sale of PPI will further push up loan rates, to around 10 per cent.
Buyers could find better rates in the New Year though, aiding sales. ‘It’s likely we could see one or two downward rate movements after Christmas, as providers seek to attract those with New Year’s resolutions.’
All of which means in-house dealer finance has rarely been more attractive. Manufacturer or specialist finance houses operate can operate independently from major high-street lenders, and are thus able to offer better rates.
It is important dealers exploit these low rates, and ensure customers are fully aware of them.
Moss offers further advice. ‘Borrowers need to… ensure they only apply for products they’re likely to be accepted for.
‘With lending criteria becoming more and more stringent, it’s important to keep your credit record as clean as possible and not taint it with failed applications for loans.’
This is something that dealers can help with. Good financial advisers will be able to pinpoint lenders most likely to accept customers, thus avoiding credit check black marks. You should use this as a big, saleable draw to in-house dealer finance.