Personal Loan Rates Have Increased, Yet Base Rates Remain Low

The average loan rates for £5,000 personal loans has increased by seventeen percent over the last two years, yet the Bank of England base rate has remained at a record low during most of that time.

There has been a 16.74% increase in the average interest rate on personal loans of £5,000 in the last two years alone.

The analysis by Sainsbury’s Finance, which compared all published interest rates on £5,000 loans for the months of September 2008 and September 2010, reveals that the average interest rate on a £5,000 loan has gone up from 10.67% APR typical to 12.45% APR typical in just two years.

In contrast, the Bank of England base rate has remained at the record low level of 0.5% over the last eighteen months. Lenders have been taking more care with their loan policies and paying more attention to risk since the credit crunch, which has reduced the competition in the market, and forced loan interest rates upwards.

Currently only six lenders publish rates below 9% APR Typical on a £5,000, this compares with 11 lenders who published a rate of less than 9% in September 2008. Sainsbury’s Finance is one of just three banks whose published interest rates on loans of £5,000 have decreased, with e supermarket bank offering personal loans for 7.7% APR typical for loans between £7,500 and £14,999.

Sainburys charge 8.7% for a £5,000 personal loan which they claim is 3.75 percentage points below the current average loan rate.

Commenting on this, Steven Baillie, Head of Loans, Sainsbury’s Finance, said: “Our analysis highlights the great fluctuation in the personal loans market and the importance of shopping around. The past two years have seen a big increase in published interest rates for £5,000 loans, however we have consistently offered competitive rates and are committed to doing so.”