Personal Loan Rates Rise As Base Rate Remains Low

Personal loans have become more expensive over the last three years despite the base rate remaining at a historic low.

Research conducted by Defaqto, an independent financial research company, shows that the average interest rate charged for personal unsecured loans has risen over the last three years, even though the base rate has fallen to 0.5% and remained at this level for over a year.

Lenders were charging 8.8%, on average, for an unsecured personal loan in 2007, however the average has risen to the current rate of 12.9%

The increased rates indicate that lenders are still risk adverse in light of the losses that they have incurred, and continue to incur, from high default rates and payment arrears.

In addition, the number of loan providers has fallen by a third during the last few years, as many specialist loan companies failed or withdrew their products from the market. Those lenders that are still active in the market mainly concentrate on offering unsecured loan products to their existing customers, rather than new borrowers.

There has been a slight improvement in the availability of loan products recently with the slow return to higher LTVs offered by lenders, including several 75% LTV products for the self employed. Credit history requirements do remain restrictive for many borrowers though.