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Loan rates still on the up

Just two weeks ago the FSA suggested that the days of cheap credit were over. The latest exclusive Moneyfacts.co.uk research into the cost of unsecured personal loans underlines that this is certainly the case.

Unsecured personal loans

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In the last year rates on unsecured personal loan interest rates have continued their upward trend. Average rates for all unsecured personal loan amounts are now up to 4.6% higher than they were in March 2007.

Smaller unsecured personal loans have seen the most severe increases. Twelve months ago, the highest rate for unsecured personal loans of £1000 to £2,999 was 19.9% on loans from Marks & Spencer Money, Sainsbury’s Bank and Britannia BS. In March 2008, the highest rate has surged to 27.9% with the online unsecured personal loan from Black Horse.

Rates for larger sums have not escaped the rate hike, although the increase in rate for borrowing in excess of £3000 has been less severe. In March 2007 Masterloan was offering rates of 5.9% for unsecured personal loans of £4000 to £15000. Now the best deal available is 6.7% from Moneyback Bank on loans of £5000 to £15000.

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

In May 2006 Northern Rock was offering rates of 5.6% for all unsecured personal loan amounts. This means that consumers taking out a £25000 unsecured personal loan now compared with then will be paying a staggering £1,655 more.

As with all other areas of the lending market, banks and building societies will have been reviewing and tightening their lending criteria. With 97% of unsecured personal loans offering typical or personal pricing, consumers with less than perfect credit scores may find themselves offered rates higher than those advertised, or declined completely.

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Secured loans

The secured loan market has also been feeling the pinch. Eight secured loan lenders including Alliance & Leicester, Money Partners and Picture Financial have all stopped offering secured loans in the last few months.

In line with the mortgage market, the amount that the lenders are prepared to offer has been slashed. Secured loans of 125% LTV are no longer available and only a handful of lenders will consider 100% LTV loans.

In March 2007 rates as low as 5.9% could be found. Now the best deal on the table is 6.4%.

With Bradford and Bingley announcing today that it is pulling all of its 100% LTV mortgages it will be especially worth keeping an eye on this market.

As borrowers are finding it more and more difficult to find a mortgage at 100% LTV they are likely to turn to secured loans to top up their borrowing.”

With the effects of the credit crunch continuing to bite, it seems likely that rates for all types of borrowing will continue to increase.

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