Loan rates branded ‘unfair’

If you are hoping to secure a personal loan , you can now expect to pay around 10.32% APR, according to calculations from moneysupermarket.com.

Although the Bank of England base rate is currently at an all time low of just 0.5%, consumers are, on average, paying almost 10 percentage points above this for their loan. This compares unfavourably with the situation a year ago, when the gap between the average loan and base rate was 3.4%.

To make matters worse for would-be borrowers, many lenders have introduced strict lending criteria since the onset of the recession and now only lend to existing customers or those with impeccable credit histories.

Those borrowing relatively small amounts are being hit the hardest. A borrower looking for a £10,000 loan can expect to pay nearly 2 percentage points less than they would on a £5,000 loan, whilst in August 2005, the difference between a £10,000 and £5,000 loan was only 0.15 percentage points.

Tim Moss, head of loans and debt at moneysupermarket.com said:

“Despite the Bank of England slashing Base Rate to 0.5% in March, loan rates have continued to rise, leaving consumers paying through the nose for their personal loans. Borrowers looking for a smaller loan of around £5,000 will be hit harder than those looking to borrow more.”

“We have seen a recent glimmer of hope as loan rates crept down slightly in August. Competition seems to be returning to the loan market which is great news for consumers; however lenders will need to continue reducing rates if they want to draw customers back, particularly those who want to reconsolidate their debt.”

“Banks and building societies are more cautious about who they’ll lend to than in pre-credit crunch days, which has made it much harder for consumers to get loans. Some lenders are introducing market leading deals, but these are restricted to customers who have an existing relationship. The clampdown on the sale of payment protection insurance (PPI) has caused providers to hike up prices to recoup lost revenue. As a result is has become increasingly difficult to get a competitively priced loan.”

“Borrowers need to keep a close eye out for the best deals and ensure they only apply for products they’re likely to be accepted for.”

Mr. Moss added:

“With lending criteria becoming more and more stringent, it’s important to keep your credit record as clean as possible and not taint it with failed applications for loans.”

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