PERSONAL loan rates have begun ticking back up from their record lows, but how have peer-to-peer lenders been responding to the changing consumer borrowing market?
In recent years personal loan rates have fallen to below three per cent as banks have benefited from cheap funding on the wholesale markets, helping them lend to borrowers at a cheaper rate.
But Andrew Hagger, founder of financial consultancy Moneycomms, says the sub-three per cent personal loan may soon be confined to the past.
Read more: Demand for personal loans continues to grow
Four of the most competitive personal loan providers were offering a 2.8 per cent or 2.9 per cent rate for a loan of £10,000 plus at the start of November, however one month later rates have been hiked and it’s becoming more expensive to borrow larger sums.
For example, M&S Bank and Sainsbury’s both offered a personal loan rate of 2.8 per cent at the start of last month, which has now increased to three per cent and 2.9 per cent respectively.
Similarly, TSB’s record low rate of 2.8 per cent has been hiked to 3.8 per cent.
But the move by mainstream lenders may benefit P2P platforms who price loans based on criteria separate to the wholesale market such as the supply of investors.
This does often mean P2P lenders have been more expensive in comparison to banks but the lending criteria may be better and the loans may be approved quicker due to better technology.
Zopa, which often competes well with mainstream providers, is now is back at the top of the tables with a rate of 2.9 per cent.
This rate has been pretty static in recent months.
In comparison, P2P borrowers can expect to pay 5.1 per cent with Lending Works, down from 7.9 per cent in September, and 6.9 per cent with RateSetter, which is up from a typical annual rate of 3.9 per cent three months ago.
“Personal borrowers have enjoyed record low personal loan rates and long term interest free balance transfer deals in recent years, but there are growing signs that the tide is starting to change,” Hagger said.
“The new squeeze on lenders is probably down to a number of factors, such as the recent base rate hike, concerns from the regulator and Bank of England regarding a possible credit bubble and inflation biting hard and reducing people’s disposable income.”
Traditional loan providers may see the interest rate hike and economic uncertainty as an opportunity to increase pricing, but this could be a chance for P2P lenders to show how they stand out from the mainstream and let their products be decided by people rather than politics.