Debt advice: Personal loan rates hit 'nine-year-high'

02/02/2010

Debt from personal loans could be causing financial difficulty for many people as comparison site Moneyfacts.co.uk reports that loan rates have hit a nine-year-high.

The website found that the average rate on a £5,000 loan repaid over three years is now 12.4 percent.

Consumers have become angered at the news as they are forced to pay high rates while the banks continue to borrow from the Bank of England at the low rate of 0.5 per cent.

Loan rates were last at an equivalent high during 2001; but then the Bank's base rate stood at six per cent, its highest point in the last decade.

Michelle Slade, spokeswoman 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 that high levels of unemployment in the UK would only add to the banks' apprehension over lending, explaining that when people lose their jobs "unsecured lending is one of the first debts they stop repaying".

Kevin Still, director of EuroDebt commented: "These rate increases reflect lenders risk management policies, where they are also 'cherry picking' the clients that they wish to take. It is definitely worth looking at the total costs before looking at using a personal loan for debt consolidation purposes.

"Nearly two thirds of debt consolidation loans result in the borrower becoming more indebted. Non-borrowing solutions like Debt Management Plans should be compared alongside high cost loans."

Posted by Fiona Smith

Tags; Current UK Economy,

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