Interest rates on small personal loans have shot up by 130% since 2006, according to information from Moneysupermarket, published by the Telegraph. Although the Bank of England base rate has been taken down to 0.5%, the average interest rate on a £3,000 loan is now 14.92%; a stark contrast to 2006, when the rate for the same loan amount stood at 6.49%, whilst the base rate was 4.5-5%.

Any borrower wishing to take out a £5,000 loan will see a similar increase; the rate has leapt from 5.83% to 10.84%. Average rates on a £10,000 loan have increased from 2.73% to 8.75%, whilst rates on a £15,000 loan have also seen a big jump; 5.79% to 9.08%

Tim Moss, head of loans at Moneysupermarket.com, said: “Unfortunately, although not unexpectedly, providers are hitting consumers in the pocket by increasing their margins across the board.”

“The days of cheap loans now seem a distant memory, as banks appear to be less willing to compete in the unsecured loan market, and it is those borrowers who are looking to borrow small amounts who have to pay more”.

Many borrowers would, in fact, be better off borrowing slightly more than they originally intended because this could reduce the total amount repaid. A £4,600 loan from Alliance & Leicester comes with an APR of15.7%, with the total repayment working out as £5,714. Borrowing an extra £400 would lead to an improved APR of 8.9%, resulting in a total repayment of 5,687; a saving of £27. Although it’s not much, any saving is a good saving.

This entry was posted on Thursday, April 1st, 2010 at 3:48 pm and is filed under Loans, Money Saving Tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.