Loan companies hiking rates in defiance of Bank of England

MoneyExpert.com is urging loan companies to stop hiking rates on loans and to pass on the most recent base rate cuts.

The independent financial comparison website says the two leading loan providers - AA Loans and Lombard Direct - both hiked rates on their cheapest loans this morning, just hours before the Bank of England announced its rate decision - widely expected to be a significant reduction.

MoneyExpert.com says Lombard Direct increased its market-leading unsecured loan rate from 7.8 per cent to 8.3 per cent on a £7,500 loan, while AA Loans increased theirs by almost a full percentage point from 8.5 per cent to 9.4 per cent.

And secured lenders are also guilty of failing to pass on base rate cuts, says MoneyExpert.com.

Many secured loans - where a lender uses a home as a guarantee against repayments - have variable rates of interest just like a mortgage. But while banks and building societies have been cutting rates in line with the Bank of England, secured lenders have largely failed to cut rates.

And MoneyExpert says that often the most vulnerable consumers turn to secured lending in a last gasp attempt to consolidate their debts and stave off debt management measures including IVAs or even bankruptcy. 40 per cent of the website's secured loan applications are for debt consolidation of this type.

The average rate on a secured loan of £10,000 would currently incur a charge of 13 per cent but rates go as high as 22 per cent, according to MoneyExpert.com.

Sean Gardner, director of MoneyExpert.com, said: "At a time when the Bank of England is cutting rates to historic lows, some lenders are hiking rates. This defies logic and is a stark indication of the scale of the crisis we are facing.

"While the Government has practically strong-armed high street banks into dropping their mortgage rates in line with the Bank of England, it has singularly failed to notice that the loan industry has continued to charge higher and higher costs."

According to MoneyExpert.com around one in four adults in Britain (26%) - around 12 million people - have personal loans.