 Personal loan interest rate
Personal loans have experienced interest rate rises, while home loans were falling, according to data from Infochoice.
During August last year and October this year, mortgage interest rates fell by more than 4 per cent, but rates for personal loans actually rose during the same period. Infochoice figures show the average variable rate for a secured personal loan rose by 0.77 per cent to an average 11.43 per cent with the banks, while that of an unsecured personal loan from a bank increased by 0.16 per cent to an average 13.89 per cent.
The bargains lay not with the banks but with credit unions and building societies, where rates are cheaper for unsecured and secured loans.
While the increases in personal loans were small during this period, it was during a time when the Reserve Bank of Australia was slashing official interest rates. The cash rate was cut by more than 400 basis points from 7.25 per cent to 3 per cent.
Shaun Cornelius, chief executive at Infochoice says: "The reduced access to funding during the global financial crisis has had a marked impact on the personal loan market. Infochoice data shows several players are no longer in the market either due to consolidation or their decision to withdraw products to the public based on limited access to wholesale funding."
As a result of the rising rates on personal loans, credit cards and redraw facilities on mortgages have become more popular as a means of raising funds.
Credit unions and building societies seem able to offer more competitive rates as they source more than 80 per cent of their funding sourced from retail deposits and not from the unstable wholesale market.
WealthPartners Financial Solutions financial planner Andrew Heaven said the advantages of using a personal loan over a credit card or equity loan are many but the biggest is that a personal loan is on a set time, forcing you to repay the debt unlike a credit card.
Official interest rates are set for another increase on Melbourne Cup Day when the Reserve Bank meets for it's monthly policy meeting. Speculation had been growing that the increase could be as much as 50 basis points however, most economists now tip a 25 basis point hike.
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