Interest rates are higher on personal loans of £5,000 or less according to new figures, suggesting borrowers should take out more than they need to avoid paying increased interest rates.
New research from moneysupermarket.com has found that average rates for the top ten personal loans under £5,000 have hit a ten year high, while loans over £5,000 are starting to fall after reaching a peak in May.
Borrowers are now paying up to 135 per cent more for their small loan compared to four years ago.
This means that anyone looking for a personal loan of less than £5,000 should consider borrowing a little bit more as it may cost them less over the full term and give them extra cash in their pocket.
Tim Moss, head of loans and debt at moneysupermarket.com said: "The credit crunch has really impacted borrowers who are looking for smaller loans. Not only is it more difficult to get a loan, with many lenders tightening their approval criteria, those that do manage to get one will undoubtedly pay through the nose.”
He said that lenders have increased the cost of lending because the Bank of England’s base rate is so low, at 0.5 per cent.
"If you are financially stretched and in need of a loan, now is the time to play the banks at their own game and really use current provider rates to your advantage,” he added.
“By borrowing a bit more you can actually save yourself money without increasing the term or monthly repayments, which shows just how much the market has changed. As with all products it is vital to shop around to make sure you get the best deal and don't be tempted to borrow more than you can really afford to pay back."
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