Loan providers hike up loan rates

A review of loan rates over the past four weeks shows that seven unsecured personal loan providers have increased their rates by 1% for new customers, causing the average interest rate on personal loans to jump from 8.74% this time last year to 9.07% today.

Providers that have increased rates include Bradford and Bingley, Cumberland Building Society and Co-Operative Bank.

This rise of 0.33 percentage points means that borrowers of a £10,000 loan over five years would pay an extra £88 in interest (from £2,283 to £2,371). According to research carried out by YouGov, 1.3 million consumers used an unsecured personal loan for debt consolidation in 2008. For such consumers already struggling to make ends meet, the hike could make the cost of consolidation just too high to consider.

But it’s a different story for existing loan customers. According to uSwitch.com, there are currently 13 deals available for existing customers at an average APR of 8.5% – over half a percentage point cheaper than deals targeted at new customers. Lenders offering ‘existing customers only’ deals include Barclays, Nationwide, Sainsbury’s and Tesco.

Louise Bond of uSwitch.com said:

“At the moment, loyalty really is king and many consumers could find a preferential loan rate with their existing provider. It’s definitely worth finding out what they can offer you before you search the rest of the market.”

“Hiking loan rates in the current climate is just making an already difficult situation practically impossible for consumers. Much as we understand that the banks are struggling, these are big hikes for people to swallow. With all eyes on mortgages and savings, it seems loan providers are slipping under the radar slightly.”

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