Rates are Competitive so why not chat with your bank manager?

The banks are dusting off and cranking up their personal loan machines. -  John Cradden

It might have been awhile since you even considered the possibility of approaching your friendly but otherwise tight-fisted bank manager for a personal loan - but you might not have noticed that the interest rates on some products have suddenly become more competitive, particularly for certain categories and types of finance. 

With both fixed and variable personal loan rates ranging from 7.lpc APR to 12.8pc APR for loans up to €50,000, the old adage that it pays to shop around for the best value still applies. 

Taking the example of a €20,000 loan paid back over five years, the cost of credit from the cheapest to the most expensive loan would be just over €3,000. 

Its easy and quick to compare personal loan rates using regularly updated price comparison websites like Bonkers.ie.

However, its worth noting that the CCPC only compares standard loans and not those offered for particular purposes, such as home improvement. 

“Its only in the last year that we’ve really noticed meaningful activity in the personal loan market," said Simon Moynihan of Bonkers.ie. "I’d include home improvement loans here too and for good reason”. KBC launched a home improvement loan earlier this year designed to be the cheapest loan in the marketplace for unsecured borrowers looking for more than €10,000." 

A spokesman for KBC said home improvements are the second most popular reason to take out a personal loan. Its home improvement loan rates areas much as 5pc lower than for KBCs standard loans, which are also fixed, too. 

Bank of Ireland also offers a discounted 9.9pc APR rate for home improvement loans that it first introduced in 2013 to coincide with the Governments extended home renovation tax incentive scheme (which offers a 13.5pc tax credit and will run until the end of this year). It is now also available to anyone looking to do home improvements - tax scheme or no tax scheme.

But if you’re doing quick comparisons and wondering at first glance why PTSB’s cheapest rate of 7.1pc seems by far the most competitive (and a variable rate to boot  - the next cheapest rate is KBC’s 8.5pc fixed rate for home improvements), that’s because its not an unsecured loan. 

“To get borrowing going again, Permanent TSB launched their Cash Secured loan last year, too" said Moynihan. 

“Its the cheapest personal loan in the marketplace, but of course it has its caveats, which is that it needs to be guaranteed." In a nutshell, the cash secured loan is a bit like a loan from a credit union in that the bank will use your savings as security for any borrowings. So you can get a loan of, say, €10,000 at a rate of 7.1pc APR as long as you have €10,000 in a PTSB savings account – a discount of over 5pc on its standard rate for a loan of this size. 

But even if you have less than that in your savings account, you can still get a discounted rate. So if you have €5,000, you’ll be entitled to a 9.3pc rate on a loan of €10,000. 

However, if you fail to repay it, the bank could raid your savings to recover its loan. It may also be more difficult to access your funds at anytime, though not impossible. 

Although it doesn’t offer a home improvement loan, PTSB does offer discounted rates for car loans, which may well appeal to those who cant fathom the idea of financing a new set of wheels on using a hire purchase type deal or those increasing popular PCPs (personal contract plans) where you don’t own the car until you make a final balloon payment. 

The (variable) rates range from 8.8pc APR on a €10,000 repayable over five years as long as the car being purchased is new or less than two years old, to 10.4pc APR if the car has a 2008 or 2009 registration. 

AIBs standard rate for a loan of less than €10,000 is 13pc APR (falling to 10pc APR for loans above this amount, but it also offers a discounted rate of 8.73pc APR for loans of up to €3,000 a year for up to four years, to pay for the increasingly punitive student contribution charge imposed by many third level institutions. Parents or guardians may be required to act as guarantors, though. 

You may also find slightly lower personal loan discounts if you are willing to apply online or over the phone than by popping down to your bank branch.

While interest rates remain a big factor in determining which lender you approach, the chances are many of us will apply for a loan from our current bank because they know our credit history and will usually not need any additional information. 

KBC Bank offsets its high rates for standard loans by offering a 2pc rate discount across the board to customers with a KBC current account.

But if you apply for a loan from a bank other than your currentbank, you will typically be asked for proof of employment, your pay slips or P60, your most recent tax returns if you are self-employed, and bank statements for the previous six months. Banks will also be expected to checkout your credit history with the Irish Credit Bureau. 

The other decision to make when choosing a personal loan is whether to go for fixed or variablerate.

Of course, the advantage of variable rate is that you can pay off your loan early, but you can also reduce payments for a time and extend the term if you struggle with the repayments. 

This is usually not possible with a fixed loan and if you decide you want to switch to a variable rate, there will be a penalty fee to pay. 

Although all KBC personal loans are fixed rate, a spokesman said there are no penalties if you want to repay a loan early — provided the amount being repaid early in a given year is not more than €10,000. 

If its higher than this, a 1pc charge on the amountbeing repaid early will apply, unless there is less than a year to run on the contracted term of the loan, in which case the penalty is 0.5pc. 

The flip side to all this is that while interest rates have been on the floor for sometime now, rates for personal loans have remained stubbornly high as banks seek to compensate for relatively low volumes of business in this area. 

Comparing rates now with what was on offer exactly five years ago, the cheapest fixed rates were from Halifax (now departed from the Irish market) with 8.5pc; and NIB (later Dankse Bank, now departed from the Irish market) with 8.75pc. 

But at that time, AIB managed to undercut NIB and Halifaxs fixed rates with a variable rate of 7.96pc APR, while the most expensive rate was Friends First with 12.60pc APR (fixed). 

But at least there appears to be a positive vibe from the banks of a willingness to lend that wasn't there before. 

"Borrowers now have a range of options available to them, where before there was a sense that there was no point in applying because loans wouldn't be forthcoming," said Moynihan.

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