Loans rates continue to rise

The average cost of unsecured personal loans has continued to increase over recent months, according to personal finance information site Moneyfacts.co.uk.

Following a warning from the Financial Services Authority (FSA) last month that the days of cheap credit were over, research from the Moneyfacts confirms this to be the case.

Average interest rates are now an average of 4.5 per cent higher than they were a year ago, for those borrowing the smallest amounts.

A borrower looking to take a £1,000 loan in March 2007 would have been hit with a rate of 14.4 per cent when it came to repayment – this has now increased to 18.5 per cent.

The highest interest rate charged on a £1,000 loan was an incredible 27.9 per cent, offered by online borrower Black Horse.

Although rates among those borrowing more showed less dramatic increases, there was still an upward trend.

A customer borrowing £5,000 would have secured an average repayment rate of eight per cent during March 2007 – this has now increased to 10.1 per cent, a rise of 2.1 per cent.

"Anyone looking to take out a loan in 2008 is going to find themselves faced with having to shell out more by way of monthly repayments than they would have done over the last couple of years," said Michelle Slade, analyst at Moneyfacts.

"The ongoing credit crisis has seen institutions concentrating on getting money in the door and becoming more expensive and selective when lending money out."

Those borrowing the greatest amounts have seen the most modest increase in repayment rates.

Secured loans have also been feeling the pinch, with eight lenders - including Alliance & Leicester, Money Partners and Picture Financial - all ceasing to offer secured loans in the last few months.

In line with the mortgage market, the amount lenders are prepared to offer has also been cut, with 125 per cent loan-to-value deals disappearing altogether.