Interest rates on loans hit nine-year high
Interest rates charged on personal loans have hit a nine-year high as banks continue to shy away from unsecured lending, research showed today.
The average rate for a £5,000 loan repaid over three years is currently 12.4 per cent, despite the Bank of England base rate being at a record low of just 0.5 per cent, financial information group Moneyfacts.co.uk said.
The last time loan rates were this high was in 2001, when a comparable deal averaged 12.5 per cent, but the base rate was 12 times higher at 6 per cent.
Interest rates on loans have been forced up by a combination of a lack of competition in the sector as banks become increasingly reluctant to do unsecured lending, and higher pricing for risk in the face of rising default rates.
Three-quarters of banks now restrict personal loans to their existing customers only, and nearly all of them employ so-called risk-based pricing, under which the rate charged is tailored according to the borrower's creditworthiness.
The stagnation in the personal loan market is illustrated by figures released by the Bank of England today, which showed that borrowing through both loans and overdrafts contracted during all but one month of 2009.
Michelle Slade, spokeswoman for Moneyfacts.co.uk, said: "Banks don't want to lend on personal loans as, unlike on a mortgage, there is no security that a loan debt will be repaid.
"They are pricing that risk into their rates and they are trying to deter people from taking them out.
"In such a risk-averse market, lenders are only offering loans to the most creditworthy applicants and then at a premium."
The best buy rate offered on a personal loan is also at a nine-year high of 8.9 per cent, offered by Alliance & Leicester on a loan of £5,000 taken out over three years.
This compares with a rate of just 5.7 per cent in 2006, and is the highest rate to top the tables since Northern Rock was leading the field with a deal of 9.4 per cent in 2001.
Moneyfacts said the lack of competition in the market was highlighted by the fact that the usual post-Christmas "loan sale", when lenders discount their rates to attract borrowers, failed to happen this year.
It urged borrowers thinking of taking out a loan to shop around, as the difference between the current best buy rate of 8.9 per cent and the worst deal available of 19.9 per cent, would cost £1,055 over the three-year term of a £5,000 loan.
But it warned people to be wary of making too many applications, as the credit searches lenders do to assess borrowers could reduce their chances of being accepted by other banks.
Lincoln MP Karl McCartney 'denied all knowledge' of the Twitter activity
Simon Read: There may be trouble ahead for cohabiting couples who don’t make a will
Money Insider: Would £150 make you switch banks?
Why the City Watchdog is concerned with the credit card industry
Bargain Hunter: Find the deals that have real value beneath the Black Friday hype
Gold-plated pensions – the key to retirement freedom?
- 1 Sean Abbott: Messages of support flood in for bowler following death of batsman Phil Hughes
- 2 Exodus Gods and Kings: Ridley Scott never considered casting 'Mohammad so-and-so from such-and-such' in lead role
- 3 This letter from a reader explains why women can’t play football
- 4 'You should come to my house and eat cheeses with me': 4-year-old sends adorable love letter to girl at school
- 5 Scientists predict green energy revolution after incredible new graphene discoveries
Ukip says babies born to immigrants in the UK should be classed as migrants – which would include Nigel Farage’s own children
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
The young are the new poor: Sharp increase in number of under-25s living in poverty, while over-65s are better off than ever
Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by Ohio police
Rochester aftermath: Sacking of Emily Thornberry will make work of Labour MPs '10 times harder'
iJobs Money & Business
£20000 - £22000 per annum: Argyll Scott International: Service Desk Analyst Re...
£20000 - £22000 per annum: Argyll Scott International: Service Desk Analyst Re...
£30000 - £250000 per annum: Recruitment Genius: A global Rolling Spot FX, Comm...
£Attractive Package: Citifocus Ltd: Chartered accountant (ACA or CPA), must be...
Day In a Page
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens