Loan News Nationwide Bucks The Trend As Average Loan Rates Rise 44 Per Cent
08 May 2009 / by Rachael Stiles
Despite the Bank of England cutting interest rates to record lows in recent months, the average rate for a personal loan has jumped 44 per cent in the last two years, according to analysis from Moneyfacts.co.uk.
Personal loans for £5,000 have seen the biggest rise in cost in the last two years, from 8.6 per cent in May 2007 to 12.4 per cent today, Moneyfacts found, calculating that in 2007, a loan customer would have paid £664 in interest but would now pay back £957 in interest payments.
But the new Nationwide loan bucks this trend of rising personal loan rates, cutting the cost of its personal loan from 8.2 per cent to 7.9 per cent this week, significantly below the average rate.
“Despite bank base rate being at an all time low, borrowers looking for a personal loan have seen no benefit,” said Michelle Slade, analyst at Moneyfacts.co.uk.
And, Ms Slade said, the advertised loan rate might not be the one that a customer ends up paying. “With many providers showing just typical rates, the actual increase a customer has to pay today compared to a few years ago could be much higher,” she warns.
Interest rates have been pushed up by the economic turbulence of the last few years, Ms Slade explains, with rising unemployment increasing the risk of a customer defaulting on their loan, and therefore increasing the cost.
Tighter lending criteria, as a result of the credit crunch, means that the best rates are only likely to be available to those borrowers with a perfect credit history. According to Moneyfacts, 19 personal loans have been withdrawn from the market, so those who need one have fewer options.
When looking to get a personal loan, Ms Slade emphasises that “shopping around is key.”