Borrowers paying much more for small loans

Interest rates charged on small personal loans have more than doubled during the past four years.

People looking to borrow up to 5,000 are now being charged up to 130 per cent more than in 2006, despite the Bank of England base rate falling steeply during the same period, according to comparison website moneysupermarket.com.

The group said this week that the rates charged on personal loans of all sizes had risen during the past four years, but people looking to borrow only small amounts had suffered the biggest increases.

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In 2006 the average interest rate of the 10 best deals on loans of 3,000 was 6.49 per cent, but this has soared to 14.92 per cent now.

There has been a similar increase in the average leading rate charged to people borrowing 5,000 – up from 5.83 per cent to 10.84 per cent during the same period.

Someone borrowing 3,000 over three years will now pay 430 more in interest than if they took out the loan in 2006.

The rate increase has been far less pronounced for consumers looking to take out a loan of 10,000, with the average top rate on these deals rising by only 2.73 per cent to 8.75 per cent since 2006.