‘Staggering’ loan rates up 44% in two years

| May 8, 2009 | 0 Comments

Loan interest rates have seen a ‘staggering jump’ over the past 24 months, according to Moneyfacts.co.uk.

The average interest rate charged on unsecured personal loans has increased by up to 44% in two years, Moneyfacts said.

According to the price comparison site, the average APR on a £5,000 has jumped from 8.6% in May 2007 to 12.4% today.

A person borrowing £5,000 over three years will pay total interest of £957, compared to £664 for a £5,000 loan taken out two years ago.

Michelle Slade, analyst at Moneyfacts.co.uk, said: “Despite bank base rate being at an all time low, borrowers looking for a personal loan have seen no benefit.

“Those looking for just £5,000 have seen a staggering jump in the cost of a loan.”

She added that as banks tighten their lending criteria, only customers with a flawless credit history will be able to get the best interest rates.

Rising unemployment increases the risk of borrowers defaulting on their loan, Slade said, and this increased risk is reflected in higher interest rates.

Recent statistics released by Credit Action show that households with some form of unsecured debt owe an average of £21,580.

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