Borrowers Charged Double Interest On Low Value Loans

Wed, 27 Jan 2010

Borrowers applying for personal loans of up to £3,000 are being charged nearly twice as much interest as those taking out larger loan sums, new research has revealed.

According to financial comparison site MoneyExpert.com, the average rate charged on a loan of £3,000 is currently 19.3 per cent, nearly double the average typical rate of 10.3 per cent for people borrowing between £7,000 and £10,000.

The financial comparison site also revealed a big difference in the best buy rates currently available for small and large loan amounts.

Nationwide currently offers a market-leading rate of 7.6 per cent on loans of £7,500 or more, while the best rate on a £3,000 loan is 14.7 per cent, which is Alliance &Leicester.

Pierre Williams, head of research at MoneyExpert.com, warned that people could be tempted to borrow more than they need due to the lower rates offered on larger loans .

He said: " Lenders are not interested in people who want to borrow small sums of money and the worry must be that many borrowers are being forced to either apply for more money than they need or look to unconventional providers who potentially will charge higher rates ."

"The repayment terms even on low value loans are such that to avoid early redemption fees, borrowers will have to pay large amounts of interest ."

"The alternative of shorter-term borrowing, where APRs are far higher over a limited period, can backfire horrifically if payments are missed."
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