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Personal loan rates up to 11.4%

Personal loan interest rates have risen to 11.4 per cent from 10.62 per cent since January.

As the credit crunch blighting the mortgage market spreads to other areas of banking, securing a personal loan is becoming more costly.

Data from MoneyExpert.com reveal interest rates on personal loans are rising across the board, with average rates on a £2,500 loan now standing at 10.11 per cent, up from 9.49 per cent three months ago, and £5,000 loan rising in cost from 9.76 per cent to 9.93 per cent.

The rate rises come despite the Bank of England cutting its base rate in December and February. However, the banks are unable to pass on these rate cuts as the credit crunch means institutions are unwilling to lend to each other, so inter-bank rates are rising.

Banks and building societies are also increasingly looking at a person's credit profile when setting a loan rate and making it harder for those deemed as credit risks to borrow.

Sean Gardner of MoneyExpert.com said: "Over 180,000 people consolidate their debts every month, and the vast majority turn to an unsecured personal loan to help them control their finances.

"However lenders are wary of customers' ability to repay what they owe so are becoming increasingly strict when it comes to choosing who they lend money to."

However, he urged people not to turn away from taking a personal loan.

"There are still competitive rates out there, particularly for people with good credit records," Mr Gardner said.

"Those in muddier waters can still borrow but may have to pay more than they would have done even three months ago."

Some 43 per cent of loan searches through MoneyExpert are for those with adverse credit records.

Despite the rising interest rates, loans are available from 7.5 per cent APR on sums of £7,500 include Tesco Personal Loans, MoneyBack, Lombard Direct, Asda, Sainsbury's Bank and Direct Line.