By Elliot Wright, 1st February 2010
Personal loan interest rates have hit their highest levels for
nearly a decade as consumers are stung by stingy banks, research
shows.
Despite the Bank of England base rate being at a record low of
0.5%, the average rate for a £5,000 loan repaid over three years is
currently 12.4%, according to financial information group
Moneyfacts.co.uk.
Loan rates have not been this high since 2001 when a comparable
deal averaged 12.5%, but the base rate then was 6%.
Interest rates on loans have been soared due to combination of
lack of competition in the sector as banks become increasingly wary
of unsecured lending, and higher pricing for risk in the face of
rising default rates.
Three-quarters of banks now only offer personal loans to
existing customers only, and nearly all of them tailor their rates
to the borrower's creditworthiness.
The stagnation in the personal loan market is illustrated by
figures released by the Bank of England, which showed that
borrowing through both loans and overdrafts contract during all but
one month in 2009.
Michelle Slade, spokeswoman for Moneyfacts.co.uk, said: "Banks
don't want to lend on personal loans as, unlike on a mortgage,
there is no security that a loan debt will be repaid.
"They are pricing that risk into their rates and they are trying
to deter people from taking them out. In such a risk-averse market,
lenders are only offering loans to the most creditworthy applicants
and then at a premium."
Moneyfacts said the lack of competition in the market was
highlighted by the fact that the usual post-Christmas "loan sale",
when lenders discount their rates to attract borrowers, failed to
happen this year.
Claims Financial
Testimonial
"I just had to put pen to paper and write to say I'm more than delighted with my settlement that you won me back from my PPI I had with Lloyds TSB. The Claim Forms were simple to fill in. It was a breeze"
Mr R Evans 11 Nov 2010