Rates soar on small personal loans
by Gill Montia
Story link: Rates soar on small personal loans
Moneysupermarket.com is suggesting that banks are trying to kill-off the small personal loans market.
According to the financial website, borrowers looking for a personal loan of less than £5,000 are facing interest rate hikes of up to 130% since 2006, despite the Bank of England’s base rate falling by 4% over the same period.
Research by the firm shows that four years ago, the average rate for a loan of £3,000 stood at 6.49% APR, so that a borrower spreading repayments over three years could expect to pay £309 in interest.
However, today’s average has risen to 14.92% APR, more than doubling the amount due in interest over the same period.
For loans of £5,000 moneysupermarket’s top 10 average rate stood at 5.83% in 2006, rising to 10.84% today and therefore showing a hike of 86%.
The firm’s head of loans and debt, Tim Moss, links the dramatic increases to last year’s decision by the Financial Services Authority to ban the sale of single premium payment protection insurance on unsecured loans.
According to Mr Moss, the end of this lucrative trade has meant that “providers are hitting consumers in the pocket by increasing their margins across the board”.
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