A number of lenders, in the UK have increased the interest rates that they place on loans, to a seven year high, in the recent months according to website, moneyfacts.co.uk. The move will have dire repercussions towards borrowers and to the UK economy.
The website, found also that borrowers who wish to take out loans, will have to pay the highest repayment levels in the final six years.
Michelle Slade, analyst at Moneyfacts.co.uk, said: "In the last few years the market for personal loans has been extremely competitive as lenders and borrowers alike cashed in on the availability of cheap credit. Increased competition pushed prices down and lenders continually undercut each other in order to top best buy tables.”
It was also stated that the lowest percentage of interest rates, for loans, was in the year 2006, with an average of 8.1 per cent for a £5,000, while loans today could add around, three per cent higher at 11 per cent.
Ms Slade continued: "With no real signs that conditions are going to get better in the near future, rates could get much higher yet. This is extremely bad news for consumers who may be considering consolidating existing debts to try to drive down their monthly expenditure."
Ms Slade, also advised borrowers not to go for the first loan that they find, but to shop around to make sure that they have the best product to suit their needs and circumstances. She said: "At a time when every penny counts, if you need a personal loan, you need to make sure that you shop around as it is highly unlikely your bank will offer the best deal.”
She added: "Currently on a £5,000 loan there is a difference between the cheapest and most expensive loan of £25.55 per month, which equates to £919.80 more over three years.”
Moneyfacts.co.uk also advised borrowers, to take out payment protection insurance, before taking a loan, to provide assistance, if repayments become difficult to maintain, though the charges for this product varies from lender to lender.
She concluded: “A loan that offers the lowest rate without PPI may not be the cheapest loan once it is included," Ms Slade explained. "If you need PPI, it is worth considering independent providers who offer the same level of cover at a much lower price."
In similar news, it was found that Britons, loan a total of £510 million to their friends and family, with the average person giving £116. However, for 3.5 million people who charitably dig deep, the consequences have not been favourable, as they have fallen out with friends, because of such loan. Around 29 per cent of the falling outs, were for loans that were under £100.
Reasons behind the loans, between friends included, wanting to help someone out until their payday, helping out with debts, holidays, home improvements and car purchases. Moreover, helping to set up a business, paying medical bills and to buy presents for a partner were also reasons why people, said they loaned money to a friend.
Paul Morrish, the head of Abbey Loans said: "As millions of Brits find that borrowing from or lending money to a friend resulted in the loss of a friendship we've seen that people can fall out over the smallest amounts of money.”
He concluded: “Those that need money for items such as cars, holidays, home improvements or even cosmetic surgery would be better off asking a bank to provide the funds, rather than risking a relationship meltdown."
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