Borrowers punished despite base rate plummeting

The average rate in March 2008 was 10.4% and even when the arrival of low value, high APR loans are discounted that average has risen to 13.2% now.

The average APR on commonly-sought loans, those between £5000 and £10,000, has increased by around 2.5% in the last 12 months, from 9.2% in March 2008 to 11.7% now.

With more than two million people missing loan re-payments in the six months to January this year, MoneyExpert.com is warning that the continued rise in rates could be pushing British borrowers over the edge.

Sean Gardner, Director, MoneyExpert.com, said: "For some mortgage borrowers the base rate cuts have been a Godsend, but other borrowers must be feeling they’ve been hung out to dry.

"High street banks, and other loan providers, seem to be operating on a completely different planet to the Bank of England, and for those seeking unsecured finance at any level the rate changes must make very unhappy reading. With banks tightening up on criteria as well as hiking the rates, options for those looking for finance are rapidly running out."

Consumers taking out a typical loan of £5000 will, if they’re unable to clear the debt in the first year, have to pay back £660 in interest alone.

The unsecured loans market has also been influenced by the advent of low value, high APR loans. These are loans from providers who offer products with a low minimum advance at very high APRs to high-risk customers.

Such is the impact of these loans that charge APRs as high as 80% in some brackets, that the average minimum advance has dropped from more than £7000 in March 2008 to £5,896 now.

Gardner said: "Loan providers are increasingly wary, and customers with less than perfect credit histories are struggling to find finance. Those customers though should tread carefully when looking at these low value products. Borrowers are obviously more likely to be accepted but risk facing enormous interest bills if they fall behind in their repayments."

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