Personal loan rates increase as debt looms over families
17 September 2009 By MoneyHighStreet Staff Leave a Comment
Three unsecured personal loan providers have increased their rates as consumers struggle with debts.
Unsecured personal loans are costing up to 1.2% more for customers of three loan providers. This could cost borrowers an extra £322 in interest payments for a £10,000 loan.
This additional cost of borrowing has come at a time when consumers are struggling with their debts, making debt consolidation to a low cost loan more difficult.
The three providers that have increased their rates since 1st September are Marks and Spencer Money, Egg and Alliance and Leicester.
The market for personal loans has shrunk over the last 12 months. There are currently 36 personal loans available compared with 57 this time last year.
The reduced number of loans available limits the choices for borrowers, who have also been faced with the rising cost of borrowing even though the Bank of England base rate remains historically low.
Loan providers tend to offer their best rates to existing customers as they seek to reduce the risks of lending. For example, the Nationwide charges existing customers 7.7% for its personal loan plan whereas new customers have to pay 8.08%.
Louise Bond, personal finance expert at uSwitch.com, comments: “As consumers struggle to make ends meet and manage their finances, loan providers are looking to offer the best rates to those whose financial behaviour they can closely inspect – which are their existing customers.”
“Last year 1.3 million consumers used an unsecured personal loan for debt consolidation purposes. However, with the number of personal loans available dropping by 37% this year and rejection running high, it would be highly unlikely that a similar number of consumers would be able to consolidate their debts this year.”
“However, for those that are thinking about, or attempting to do this, it would definitely be worthwhile finding out what rates existing providers can offer, as it seems loyalty is one of the only aspects that could win consumers better interest rates at the moment.”
