Banks increase cost of personal loans

The cost of a best buy £5,000 loan has risen 1.54 per cent since the beginning of the year to 10.78 per cent despite interest rates being at a historic low of just 0.5 per cent.

The rise means customers will spend £162 a month over three years repaying the loan, or an extra £120 over the lifetime of the deal compared to last January.

Tim Moss, head of loans and debt at personal finance website Moneysupermarket.com, said: “The financial crisis may have eased but this hasn’t filtered through to the personal loan market yet.

“We have seen the banks go from choosy to almost locking down completely. By restricting loans to existing customers only, banks are able to manage their lending more cautiously.”

The Bank of England disclosed last week that non-mortgage or credit card based lending fell by £0.7 billion in October, but experts said the decline was expected given the restricted choice of loans available.

Mr Moss added: “It is no surprise: it is quite clear that the fall in this kind of lending is almost entirely down to a lack of supply.

The research by Moneysupermarket.com suggested eight out of nine high street lenders only offered loans to existing customers, typically current account customers.

A spokesman for the British Bankers’ Association, said: “The UK economy has changed considerably since the credit crunch began and it is still changing. Lenders price their loans according to the economic factors of the time, and although there is still aggressive competition for customers, there are also harsh economic realities they have to deal with.

“They still have to fund their loans using a mix of wholesale money and customers’ deposits, and neither of these options is open to them at anything like the Bank of England’s base rate.”

source: http://www.telegraph.co.uk/finance/personalfinance/6810225/Banks-increase-cost-of-personal-loans.html