Low Interest Rates Mean You Could Borrow More to Save More
Financial comparison website Moneysupermarket.com has revealed that it may now make sense to save money by taking out larger unsecured personal loans.
While the repayment costs of personal loans of under £5,000 have risen to their highest levels for a decade, the site said that the cost of larger loans has been falling ever since May 2010. It pointed out that although this may sound counter-intuitive, this means that taking out a larger personal loan may be the best way to save cash in the long term.
Moneysupermarket.com’s report explained that if a borrower took out a personal loan of £4,500 over five years at the top current interest rate of 13.8 per cent, they would repay a total of £1,643 interest. In comparison, borrowing just £500 more would make them eligible for the more competitive interest rate of 8.8 per cent, bringing the total amount of interest repayable down to just £1,150. On top of this, the monthly repayments would remain the same, but with £500 extra to spend initially.
The lower rate levels for higher loans make them perfect for financing a major purchase, or for reducing monthly outgoings via the process of debt consolidation.
Moneysupermarket.com loans manager Tim Moss said: “You can play the banks at their own game and really use rates to your advantage. By borrowing more you can actually save yourself money without increasing the term or monthly repayments, which shows how much the market has changed. As with all products, it is vital to shop around to make sure you get the best deal but don’t be tempted to borrow more than you can really afford.”
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