Personal Loans Miss Out On Rate Cuts

Interest rates on home loans fell by more than four percentage points between August last year and October this year, while the rates for personal loans rose during the same period.

Figures released by Infochoice showed that the average variable rate on a secured personal loan from a bank rose by 0.77 per cent to an average 11.43 per cent while that of an unsecured personal loan from a bank increased by 0.16 per cent to an average of 13.89 per cent.

Personal Loans from non-banks are cheaper

The Australian has reported that apart from the banks the credit unions and building societies, rates are cheaper for unsecured and secured loans.

Of these secured personal loans rose by only 0.07 per cent during the 14 months to October this year, while unsecured personal loans increased by 0.36 per cent.

Statistics collected by Infochoice showed non-bank rates for a secured personal loan averaged just 9.42 per cent while unsecured loans were 12.53 per cent on average.

Although the rise in personal loan rates was small but it was during a time when the official cash rate more than halved from 7.25 per cent to 3 per cent.

Personal Loans losing out to credit cards

It's no surprise that personal loans have been losing out to credit cards and redraw facilities on mortgages as a means of raising funds.

The reduced access to funding during the financial crisis had a marked impact on the personal loan market.

Credit unions and building societies did not face these pressures with more than 80 per cent of their funding sourced from retail deposits and not from the volatile wholesale market.

According to Michael Cant, head of retail products for the Commonwealth Bank personal loan approvals in the three months to July this year were some of the highest on record.

Andrew Heaven of Wealth Partners Financial Solutions said there were a number of advantages in using personal loan over a credit card or line of credit in your mortgage. Personal loans have a set time structure where as a credit card is a mechanism to provide you with the discipline to pay back your loan.

Published on October 10-th, 2009 in Personal Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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