Looking back just four years, loans were 60% cheaper.

Sounds a huge increase doesn't it but when you consider the net increase in base interest rates since 2003, the interest charged on loans and mortgages has increased by 2.25%, applying this to loans which at the time in 2003 were based on the base rate being 3.5%, the actual increase in charged interest is just over 60%.

That would have been the case for a fully variable loan, but many loans are arranged on a fixed rate basis, so if you took out a 5 year term 4 years ago, you are still enjoying a very nice low rate loan.

Other types of loans are arranged on variable rates, so the interest charged changes over the time of the loan. Anyone taking out a variable rate loan will benefit in the future if rates decrease, but equally they could increase and the interest charged would go up.

Lenders who offer fixed rate deals are in effect betting on the future movements of money markets and there have been some signs recently that fixed rate deals are reducing in cost. This can be seen as an indication that banks expect rates to decline over the medium term.

The type of loan you select should be based on the size and duration of the loan, your own financial circumstances and your ability to cope with any increases in monthly repayments should they occur. If your budget is fixed and already stretched, then a fixed rate loan may not be the cheapest but could well be the safest for you.

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