Mon, July 14 2008

What a difference a year makes. Last spring lenders were falling over themselves to offer cheap credit. Now they're tightening their lending criteria and upping interest rates.

The average rate for a two-year, fixed rate mortgage, according to data analysts Moneyfacts, was 5.8 per cent in April 2007. A year later it had risen to 6.64 per cent, despite the Bank of England base rate being 0.25 per cent lower than it was in April 2007.

Personal loan rates have also raised - the average rate for a loan of £5,000 was 8.21 per cent in April 2007, but soared to 9.85 per cent in April 2008, making the loan £126 more expensive if you took it out over three years.

That said, there are still some good deals to be found if you know where to look. If you need to borrow, follow our advice on keeping down costs.

UNSECURED LOANS

Unsecured loans are a straightforward way to borrow. You can borrow between £1,000 and £25,000 and repay the loan over a period of up to seven years.

The deals are offered with fixed interest rates, so your monthly payments stay the same throughout the term of the loan.

Almost all the rates you'll see advertised now are `typical' rates. This means that only 66 per cent of the applications granted have to be at this rate or lower.

When you apply for a loan, the lender will carry out a credit rating assessment to decide how much risk there is in lending to you. The higher the risk, the higher the interest rate you'll be quoted.

GOOD FOR: Borrowing £5,000 or more. Fixed rates and structured repayments make them easy to manage.

BAD NEWS: Loans are expensive if you want to borrow smaller amounts. You can't always get the advertised rate. Early repayment charges often apply.

SOURCE: manchestereveningnews.co.uk