Loans squeeze at £5,000 as average rates hit 9.5%

Average rates on unsecured loans of £5,000 are now nearly 9.5 per cent as the credit crunch hits home, new research from MoneyExpert.com reveals. But borrowers who take a £7,500 loan will see average rates drop to 7.97 per cent.

The independent financial comparison website’s research shows just four providers now offer loans for £5,000 at less than seven per cent and that rates range from 6.7 per cent to as high as 13 per cent. Average rates are 9.4475 per cent.

But when borrowers take loans of £7,500 up to seven providers offer rates below seven per cent with Sainsbury’s Bank and Tesco Personal Finance charging 6.5 per cent and 6.4 per cent respectively. Average rates are 7.97 per cent.

The credit crunch has lead to lenders getting tougher on applications with rates rising and some firms such as LV=, GE Money and Leeds Building Society pulling out of the unsecured loans market entirely.

And MoneyExpert.com’s own research** shows 1.91 million adults were turned down for unsecured personal loans in the six months to September 30 compared to 1.39 million in the previous six months.

Sean Gardner, Chief Executive of MoneyExpert.com, said: “Borrowers are feeling the pinch with those wanting to borrow less getting squeezed the most.

“It may seem paradoxical but you will be charged more on average for borrowing less. There are fewer competitive deals around for people borrowing £5,000 than for those wanting £7,500.

“Lenders take the view that those borrowing more are in general a better risk than those borrowing less and offer better rates as a consequence.

“There are still good deals out there if you need a personal loan but borrowers need to be aware that lenders are getting tough on applications and rates.”

Analysis shows the best rates at £5,000 include lenders such as AA, Bradford & Bingley, Barclays and MoneyBack. The highest rates at £5,000 are charged by Ulster Bank, Yorkshire Building Society and Saffron Building Society.

At £7,500 the most competitive rates come from Sainsbury’s Bank, Tesco Personal Finance and Moneyback. Highest rates start from 10.94 per cent.