Seven not so magnificent loan providers up rates by 1%

In just four weeks, seven unsecured personal loan providers have implemented rate hikes of 1% for new personal loan customers, increasing the average loan rate from 8.74% to 9.07% compared to this time last year.

This may seem like quite a small ‘tweak', but on a £10,000 loan over five years, the total amount of interest paid will increase from £2,283 to £2,371.

This is a real problem for consumers that are struggling with several debts and are desperate to consolidate. Last year, 1.3 million consumers used an unsecured personal loan for debt consolidation. If this trend continues throughout 2009, consumers trying to do the right thing and keep all their debts in one place will end up paying almost £100 more in interest compared to this time last year.

Providers that have increased rates include:

1. Bradford and Bingley
2. Cumberland Building Society
3. Furness Building Society
4. Smile
5. Co-Operative Bank
6. Cheshire Bank
7. Stroud and Swindon

However, it's not all bad news as the trend of offering existing customers preferential rates is a growing one. There are currently 13 deals available for existing customers at an average APR of 8.5% compared to an average of 9.2% (0.7% higher) for deals targeted to new customers. The ‘existing customers only' policy is operated by nine providers including Barclays, Nationwide, Sainsbury's and Tesco. In fact, just this month HBOS went one step further by closing the doors to new business altogether.

Louise Bond, personal finance expert at uSwitch.com, comments: "At the moment, loyalty really is king and many consumers could find a preferential loan rate with their existing provider. It's definitely worth finding out what they can offer you before you search the rest of the market.

"Hiking loan rates in the current climate is just making an already difficult situation practically impossible for consumers. Much as we understand that the banks are struggling, these are big hikes for people to swallow. With all eyes on mortgages and savings, it seems loan providers are slipping under the radar slightly."