Many industry experts predicted the days of personal loans charging less than 6% interest would come to an end.
This certainly seems to be the case now. At the end of May, Masterloan, which was the only remaining lender offering a rate below 6%, increased its APR to 6.1%.
Rising bad debts, increases in the Bank of England base rate, plus economic instability have all contributed to the rise in personal loan rates.
During the past year, the Bank of England has raised its base rate on five separate occasions, increasing it from 4.50% a to 5.75%. In addition, more and more borrowers have been defaulting on their debts, as a consequence lenders have increased loan rates in order to maintain their profit margins.
Nevertheless, the rates on personal loans are still historically low.
The current leading deal is offered by Moneyback Bank, a brand of Alliance & Leicester, which charges 6.3% APR. For a loan of £7,500 repaid over five years, the total amount repayable would be £8,733.60*.
If you borrowed the same amount over the same period from First Direct, you'd be charged 11.9%, meaning a total of £9,859.20 repaid, which amounts to £1,125.60 more than Moneyback's offering*.
*Rates quoted are those which were available on 21/08/07