Personal loan rates rise

Monday, 26 October 2009 03:21

Personal loan rates are increasing as lenders are not seeing risks drop, despite optimistic predictions for the economy.

The average rate for a £5,000 loan is now up 0.2 per cent since March to 12.4 per cent and for a £10,000 loan it is up 0.5 per cent to 9.9 per cent, according to the data from Moneyfacts.co.uk.

The average £25,000 loan rate is up 0.5 per cent to 10.0 per cent - making it £335 more expensive than six months ago.

Only loans for £1,000 have remained steady - at 19.7 per cent.

Michelle Slade, spokesperson a Moneyfacts, explained not only are rates rising, but lending criteria are tightening.

"Only customers with blemish free credit records are likely to be accepted for a personal loan," he said.

"Unemployment continues to rise and lenders are worried that an increased proportion of their customers will default on their loan.

"It is highly likely that new customers are paying an increased premium to cover the defaulting customers who took out loans the previously more competitive rates."

She added the upward trend for rates is set to continue

"Anyone in need of a personal loan, really needs to ensure they do their homework to find the best deal possible or they will be left severely out of pocket," Ms Slade claimed.

Comparing the market for loans is also becoming tougher - as lenders move towards setting a rate depending on your personal circumstances.

For example, Nationwide has a deal at 7.9 per cent, but this is only for existing customers.

Furthermore when rates are advertised, only 66 per cent of customers actually get these rates.

Alliance & Leicester also has a deal at 7.9 per cent, as does Asda Personal Loans.

Virgin, your personal loan.co.uk, Tesco Bank, Sainsbury's Finance all have deals at 8.0 per cent.

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