Low rate loans a thing of the past
Michelle Slade, analyst at Moneyfacts.co.uk, comments:
“Anyone looking for a personal loan can no longer find rates of less than 7%. Yourpersonalloan.co.uk, which is funded by The Co-operative Bank, has increased its rate from 6.9% to 7.3%.
“Back in June 2006 rates as low as 5.6% were on offer and even this time last year rates as low as 6.1% could be found. Today the lowest rate on offer is from The AA on its telephone loan at 7.2%.
Date |
APR |
Example monthly repayment on £10K loan over 5 years |
Example total cost over 5 years |
June 2006 |
5.6% |
£190.83 |
£11,449.80 |
June 2007 |
6.1% |
£193.03 |
£11,581.80 |
June 2008 |
7.2% |
£197.88 |
£11,872.80 |
Source: Moneyfacts.co.uk 25.6.08. |
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“A personal loan of £10K over five years would now cost a consumer £423 more over the term of the loan than it would have two years ago.
“Just like with mortgages, lenders are struggling to raise funds to lend out to consumers. As a result this increase is being passed on through the APR offered. With many lenders offering typical rates or personal pricing, it is likely that many customers are being offered a much higher rate.
“It is highly probable that lenders are passing on the increased costs through payment protection insurance, as a way of keeping the rate down. This is harder to quantify as most lenders make any increases to the cost of payment protection at the same time as any increase in rates.
“However, in June 2006 the cost of payment protection insurance on the top best buy £5K loan over three years was £470.16. Today that stands at £676.80, an increase of £206.64.
“At a time when costs across the board are increasing, this will be more unwelcome news for consumers. The demand for personal loans is likely to be increasing as more households look to consolidate existing debts. Lenders are tightening criteria and those that can get a loan are finding they have to pay a much higher price.”
Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.
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