Cheap and flexible (Northern Rock)

Member Name: ahenry

Product:	Northern Rock
Date:	22/11/01 (968 review reads)
Rating:

Advantages: Cheap interest, Reasonable redemption penalties

Disadvantages: You have to pay the money back in the end

When I took out a Northern Rock personal loan for £5000 a bit over a year ago, the interest rate was the best I could find. Since then they still appear on the best buy tables, at least for loans without payment protection. One of the key features is that they charge the same interest rate for any loan between £1000 and £25000. This makes them really good value for a £1000 loan. For bigger amounts some of their competitors may be cheaper.

If you are thinking about taking out payment protection for a loan, make sure you work out just how much the insurance premiums will cost. When I checked, they increased the effective interest rate on the loan from under 9% to well over 30%. If you suspect that you may be about to be made redundant, then this might be a better bet, but you should read the terms and conditions very carefully as you might find clauses that would allow the insurance company to avoid paying. Personally, I think you would be better to take the risk and insure yourself for this sort of risk.

It turns out that I was able to pay back the loan early. They had no problem doing this. The penalty was one month's repayment. When I took out my loan, Egg were offering personal loans with no early redemption penalty, but the rate of interest was 11.9%. Unless I had repaid the whole loan within the first 10 months, the Northern Rock loan at 8.8% was cheaper. Once you take out the loan, the interest rate is fixed. In the last year, whilst the Bank of England base rate has plummetted by a couple of percent, the rates for personal loans have only dipped by about half a percent. Still if rates did drop further, you might be able to redeem the old loan and take out a new loan at a lower interest rate.

If you have Microsoft Excel and you want to try out some calculations for loan repayments, use the PMT function. This needs the monthly interest rate. To get the monthly interest rate from the annual interest rate of 8% calculate 1.08^(1/12
). Thus to calculate the monthly repayment for a 3 year loan at 8% interest per annum, calculate =PMT((1.08^(1/12)), 36, 5000, 0)

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