Interest rate strife for loan rangers

18 October 2007

The last few months have been testing times for all concerned within the financial sector. The industry has lurched from crisis to turmoil and back again. However, now the dust is beginning to settle, it looks like the losers out of it all are the customers.

Despite the Bank of England keeping base interest rates constant for the past three months, charges on personal loans have kept on climbing, forcing many consumers to deal with higher repayments and, as a consequence, tipping many into greater debt.

Interest rates have been raised by nine lenders so far as a result of financial problems both in the UK and in the US. Those customers most at risk are those with unsecured personal loans, with lenders taking increased risk from borrowers into account when deciding whether to raise these interest rates.

Among lenders which have raised rates are Bradford & Bingley, the Norwich and Peterborough Building Society and Halifax. Financial analyst Lisa Taylor, of Moneyfacts, suggests that many people have been hit hard by such hikes.

"The last nine months have seen a steady increase in the rates available for unsecured personal loans. Only four months ago, sub six percent rates were available, whereas today you would be hard pushed to get your hands on a rate of less than 6.9 per cent."

As interest rates rise, though, the amount people owe on their loans increases and personal debts increase. According to statistics from Credit Action, total personal debt in the UK is at an all-time high, with the each person owing £4,524 on credit cards and personal loans, at the end of August. Since then, loan interest levels have risen further, increasing that figure.

One industry professional told UK Personal Loans: "With increasing uncertainty in the financial markets, rising levels of bad debt and a year of interest rate rises putting pressure on our disposable incomes, it comes as no surprise to see lenders increasing their lending margins."

However, signs that the credit crunch is easing are appearing. The global financial markets are levelling off; the Northern Rock crisis appears calmer and the Bank of England is rumoured to be toying with the idea of decreasing interest rates.

Pressure on those with personal loans also appears to be lessoning. One high street bank, Barclays, has recently cut interest rates on all its loans to help consumers who have been hit hard.
Gary Duggan, managing director for Barclays Personal Loans, said that Barclays` strong balance sheet has meant it can pass some of its profits directly on to customers to help them out at such a stressful time.

Mr Duggan added: "Many lenders have been struggling to maintain their current loan rates, and we have seen increases of 0.5 per cent and upwards over recent months as the financing of their products have become more expensive."

So, as the worst appears to be over, those with personal loans are fighting to keep themselves as debt-free as possible. Despite conditions still being tough, there does seem to be some hope on the horizon from the unlikeliest of places - the lenders themselves. As the old saying goes - what goes up, must come down.

Top of page

Fill in our form for FREE debt help