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Lower rates on Loans

The recent massive cuts in interest rates will have at least one major effect on the stagnating loans industry and there could be yet more benefits on the horizon.

When interest rates fall many expect those drops to be reflected in commercial rates on mortgages and loans, but as borrowers have found recently that is certainly the case in todays unusual borrowing marketplace. However the huge drop in interest rates announced last week is almost certain to filter through to the personal borrower in at least one of two ways. Firstly the availablity of loans should become more open, meaning that potential borrowers who have had applications refused over the past few months will stand more chance of getting a loan. The rate at which loans are offered is highly dependent on risk as well as the going rates for credit in the wholesale markets. With base rates now at only 3 per cent, there is much more scope for lenders to offer suitable loans to more candidates. The net effect could be an improvement for future developments at loans companies.

Banks and other lenders are being encouraged, by both the press and the Governement, to pass on the rate reductions to their borrowers. Those on variable rates are the most likely to see the impact of the reductions, while we will have to wait and see the net effect on new loan products.

Many lenders responded immediately by withdrawing whole portfolios of tracker-type loans, fearing a risk in profitablity if they continued to offer such low rate products.

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