Rates soaring on personal loans

Consumers taking out a personal loan are “paying through the nose” due to soaring interest rates.

Banks are now charging an average APR of 10.32% on personal loans even though the Bank of England’s base rate has been held at a record low of 0.5%.

This compares to an average personal loan APR of 8.71% in 2004.

“Despite the Bank of England slashing Base Rate to 0.5 per cent in March, loan rates have continued to rise, leaving consumers paying through the nose for their personal loans,” said Tim Moss, head of loans and debt at moneysupermarket.com.

Banks and building societies have become much more cautious in their lending criteria, making it difficult for many consumers to secure a loan at a reasonable rate of interest.

Moss said rates fell slightly this month, but added lenders must offer better value to attract consumers back to borrowing.

“We have seen a recent glimmer of hope as loan rates crept down slightly in August,” Moss said.

“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 consolidate their debt.”

Recent research by Moneynet.co.uk found the number of lenders on the market has more than halved since 2004, from 62 to 29.

“Credit is tight, bad debts are rocketing and loan providers are far more cautious but operating on a vastly increased margin,” said Andrew Hagger, Moneynet.co.uk spokesperson.

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