Personal Loan Rates Reach Nine Year High

Tue, 02 Feb 2010

Interest rates on personal loans from the country’s major lenders have hit their highest level for almost a decade, according to personal finance website Moneyfacts.co.uk.

Bank rates have risen to an average of 12.4 per cent - the highest since 2001 - despite the Bank of England keeping the base rate at a record low of 0.5 per cent.

Moneyfacts claims the increase has been driven by a rise in the number of borrowers defaulting on their loan repayments during the tough economic climate.

The best rate currently available on a three year £5,000 personal loan is 8.9 per cent, which equates to monthly repayments of nearly £160.

The figure is considerably higher than the 5.7 per cent best loan rate that was available four years ago, prior to the start of the credit crunch.

Michelle Slade, spokesperson for Moneyfacts.co.uk, commented: "Unlike on a mortgage, there is no security that a personal loan debt will be repaid."

"In such a risk adverse market, lenders are only offering loans to the most creditworthy applicants and then at a premium."

She added: "The post-Christmas loan sales that we see each January did not materialise, a further indication that lenders do not want to encourage unsecured lending ."

"Unemployment remains high and when people are struggling to meet repayments, unsecured lending is one of the first debts they stop repaying."
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