Friday, February 13, 2009
Category:
Consolidation
According to Moneyfacts, the cost of unsecured personal loans is rising and it would seem that those of a lower value have been subject to the highest increases.
Since June 2007, loans of £1,000 and £5,000 have seen increases of 2.5 percent and 3.4 percent respectively. Today, an average rate of 19.8 percent is applicable to the former, and 12.0 percent to the latter.
In June 2007, the average rate for a loan of £5,000 stood at 8.6 percent, which meant that over a three year period it would have cost £663.70 in interest. However, now the borrower would be facing a sum of £925.97, which marks an increase of £262.27.
The greater the loan amount, the greater the impact of a rate increase. For example, at the rate of 7.3 percent in June 2007, £4,748.93 would have been paid in interest on a loan of £25,000 taken out over five years. In contrast, today borrowers could expect to pay an additional £1,468.63 bringing the total to £6,217.56.
Moneyfacts’ analyst, Michelle Slade, commented: "Rising unemployment and a declining economic outlook have meant the risk of customers defaulting on unsecured lending has increased. As a result, borrowers are paying a significantly increased rate than they were 18 months ago. Base rate may be at a historically low level, but anyone needing a personal loan has seen no benefit. With stricter lending criteria, it is now much harder to be accepted for a loan and if you are, you will be paying a premium for the benefit.”
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Homeowners that are juggling several expensive personal loans may wish to consider consolidating these with a secured loan. A
secured loan would result in just one potentially lower monthly repayment and could be repaid over a term to suit the borrower from 5 to 25 years. It should be remembered however, that consolidating your debt may increase the amount you pay back overall and extend the repayment periods of your debts.
