Thrifty Loans

The interest rates for personal loans have seen steep increases in recent months. The Bank of England’s base rate has remained at 5.75% since July, but personal loan rates have shot up as a result of the credit crunch.

A survey of 32 loan providers showed that some have pushed rates up by 3% - 12 times the 0.25% rise by the Bank. The average rise across all providers surveyed was 0.93%.

Comparison website uSwitch.com carried out the survey, which also found that if you get a personal loan rate “offline” (face to face in branches, or over the phone) your rate could be five times higher than if you were to use the internet to arrange your loan.

The increases – applied only to new loans – will pile more misery onto those already struggling to cope with mortgage increases and rising household bills over the last 15 months.

Nearly 70% of borrowers use personal loans to consolidate other debts, such as overdrafts and credit cards, but interest rates can vary widely, from less than 7% to over 20%.

A loan of £5,000 over five years at 6.9% would mean a pay back total of £5, but if the rate was 9.9% for the same period and amount the total payback would rise to £6,297.

There is such a difference between online and offline deals that the internet is the place to look for the best deals. The average for an offline loan has risen by 1% since July, but online deals are only up by 0.2%.

There are also big differences between advertised rates and those a customer may eventually get. Lenders are using what they term “personal pricing”, where they base the interest rate on the customer’s credit history. The result is that shopping around is difficult, as you can’t tell the rate you’re going to get until you’ve gone through a quotation process