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Levels for personal loans hit seven-year high after lenders up rates
Personal loan rates have hit a seven-year high as lenders continue to increase the cost of the deals in the face of the credit crunch.
Financial information group Moneyfacts.co.uk said the best personal loan rate currently available for someone borrowing 5,000 over three years was 7.6 per cent.
It said that was the highest best buy rate since 2001, and well up on a leading rate of 6.3 per cent in August last year and a recent low of 5.6 per cent in August 2006.
Analyst at Moneyfacts.co.uk Michelle Slade said: "In the last few years the market for personal loans has been extremely competitive as lenders and borrowers alike cashed in on the availability of cheap credit.
"Increased competition pushed prices down and lenders continually undercut each other in order to top best buy tables."
But since August 2006, the average rate available for people borrowing 5,000 over three years had increased by nearly 3 per cent from 8.1 per cent to about 11 per cent today. Personal loan rates have been hit by the credit crunch as banks pass on their own higher borrowing costs to consumers.
Lenders have also raised their rates to reflect the riskier nature of unsecured debt, which consumers are generally more likely to default on than a mortgage if they run into financial difficulties.
Ms Slade warned that with no real sign that conditions were going to get better in loan markets, rates could increase further. "This is extremely bad news for consumers who may be considering consolidating existing debts to try to drive down monthly expenditure."
She urged people who were planning to take out a loan to shop around for the best deal, adding that the difference between the cheapest and the most expensive 5,000 loan was currently 25.55 a month or 919.80 over a three-year term.
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Thursday 24 May 2012
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