Lenders Sting Customers With Higher Rates
Monday, January 21st 2008
LONDON (Reuters) - Lenders are stinging consumers with far larger increases in the cost of borrowing than hikes in the official interest rate, figures show.
Average rates on personal loans have increased by more than the Bank of England base rate since November 2006, according to price comparison service MoneyExpert.com.
The official rate of interest currently stands at 5.5 percent, up from 5 percent 14 months ago, but typical loan rates have risen at a far faster rate, irrespective of the loan amount.
People looking to borrow around 3,000 pounds have been the hardest hit, with average rates rising by 2.55 percent to 14.9 percent from 12.35 percent.
Borrowers looking for larger loans -- typically more attractive customers for lenders -- have been hit too. Average rates on 12,500 pound loans have risen by 1.6 percent to 8.78 percent from 7.1 percent.
The increases have affected people's ability to repay their debts, MoneyExpert said.
One in 50 adults has failed to make a payment on a personal loan in the six months to 21 December 2007, according to a YouGov poll of 2,000 people for Citigate Dewe Rogerson.
Sean Gardner, chief executive of MoneyExpert.com, said: "With the cost of living on the increase, the obvious thing to do for anyone feeling the strain is to borrow money to tide themselves over.
"But people who want to take out a loan to consolidate debts or to make a large purchase must be wary of the overall cost."
The global credit crunch, triggered by the US subprime crisis, has led to lenders getting tougher -- hiking rates and refusing an increasing number of applicants.
Some firms, such as LV=, GE Money and Leeds Building Society, have pulled out of the unsecured loans market entirely.
