Why Personal Loans Carry High Rates

People are often confused about why personal loans carry a high rate when other types of finance hold relatively low rate loans. The thing to remember is that personal loans are typically below ?15K and for a short period of time. The shorter the term the more the lender fee affects the APR. Therefore it's not always the case that the high APR means a bad loan. For example, looking at Wonga, they show a typical APR of 2689% APR. This is because the term is a very short period and any fee ?49 for 32 days on a loan of ?135 will seriously affect the APR, however this is another side to this story.

The key is to look at the total repayment. Some personal loans (Zopa Loans) for ?15K over 10 year will pay ?4,498 in interest. However the same secured loan (IGroup) will pay ?4,371. This is only a small difference but it proves that sometime a secured loan is a better option than a personal loan.
As I said, do not look at the APR. Never remember it and don't let people quote it to you as if it means something. For example the personal loan is quoted as 11.4%APR however the secured loan is 11.9%. The point to note is that if you looked at the APR your would believe that the personal loan is the better deal. However looking at the total repayment you can clearly see that the secured loan is the best option.

how Can two loans for the same amount and the same term produce conflicting APR results? This is quite simple, the FSA does not clearly state what constitutes an APR. The lender is allowed to include any fees to the APR calculation at any point. Some lenders include the lender fee into the APR, showing a higher rate. However you can workout the repayment by including the fees but do not include the fees in the APR shown in the credit agreement. This means that you really can not trust the APR as you do not know what the calculation include and that personal loans are not always the good low rate loan you think they are.

Compaire your personal loan againt a secured loan here