The cost of a personal loan has increased recently as a result of the crackdown on the selling of payment protection insurance (PPI).Loan
providers were making a considerable profit on the PPI they were selling with their loans, but regulators warned them to stop mis-selling these policies and therefore they are having to recoup their losses by increasing the rates on their loans.
PPI can provide security if the borrower is suddenly unable to keep up with repayments; but lenders were accused of using underhanded tactics to sell PPI, such as telling borrowers that they had to take it out if they wanted to the loan, or adding it onto the price of the loan without properly explaining it to the customer. Many customers have now reclaimed mis-sold payment protection insurance
premiums, leaving a hole in lenders' profits.
Two of the most competitive loan providers on the Daily Mail's Best Buy table, Moneyback Bank and Alliance & Leicester, have both increased their rates by as much as one whole percentage point in the last 12 months.
The difference in monthly repayments on a loan of £5,000 over a five year period is just £3.76, but this adds up to a total extra cost of £188 on the total loan repayment.
Other loan providers such as Barclaycard and Black Horse, have also increased their rates, but for those who compare loans
from a wide range of providers, there are still some competitively priced deals to choose from, the Daily Mail says.
Shopping around for the best loan deals is more important than ever, because as the credit crunch takes its toll on household finances there has been a decrease in the number of people who can lend money to family members instead of them taking out a loan.
Family loans have dried up since the cost of living started to rise considerably, eating into people's spare cash and forcing 78 per cent of Britons to cut down on their personal spending, thus preventing them from offering their loved ones a financial helping hand when they need it.
Chelsea Building Society has found that while 59 per cent of Brits are willing to lend family members money, almost 30 per cent are unable to do so in the current economic climate.
However, they are counteracting this by offering other forms of assistance, such as the 54 per cent who would offer their immediate family free accommodation, or the 51 per cent who would offer to look after the children free of charge so that family members could go out to work.
"Whereas previously Britons could rely on their family members to bail them out when they got into difficulty, now when they turn to their families as a last resort they might find that their families are also suffering the pinch." said Darren Stevens, director of customer services at Chelsea Building Society. "A lack of extra funds means that families have to help each other out in non-financial ways."
He added that "Britons should start taking control of their own finances through proper financial planning and saving."
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