Personal Loans: Interest rates rise in credit crunch
Personal loan rates up 1%
Monday, 19 May 2008 11:53
Interest rates on personal loans of £5,000 to £7,500 have increased by one per cent in the last six months, despite the Bank of England cutting its base rate three times.
Research by moneyexpert.com reveals the average rate for a £5,000 loan is now 10.16 per cent compared with 9.45 per cent in November 2007, while the average rate for a £7,500 loan has increased by 0.91 per cent to 8.88 per cent, compared with 7.97 per cent in November 2007.
The credit crunch is not only making personal unsecured loans more expensive, but also harder to come by as lenders become more picky about who can borrow.
Some 1.38 million people have had loan application turned down in the past six months.
Sean Gardner at MoneyExpert said: "The Bank of England has a battle on its hands to restore confidence in the credit markets when lenders react to three rate cuts totalling 0.75 per cent by actually increasing rates.
"The unsecured loans market is almost mirroring the mortgage market where the issue is not so much rates but availability - whether or not lenders will let you have the cash."
However, Mr Gardner added creditworthy customers can still access competitive deals and borrowers should research the market carefully before making an application.
"And you will pay lower rates on average if you borrow more," he added.
"Lenders take the view that those borrowing more are generally a better risk than those borrowing less and offer better deals as a consequence."
The best deals for a loan of £5,000 is with Your Personal Loan, which is only available to homeowners, at 6.9 per cent or Wesleyan Personal Loan at 7.4 per cent and Moneyback Loan at 7.9 per cent.
At £7,500 the most competitive deals include ASDA Personal Loan at 6.9 per cent or Tesco and Moneyback at 7.2 per cent.
These compare with the worst rates on the market of 29.9 per cent on a Citi Financial Loan and others charging 13.4 per cent and 16.9 per cent on £5,000 loans while at £7,500 rates go to between 10.9 per cent and 11.9 per cent at the top end.