Loan rates continue to soar

Michelle Slade, analyst at Moneyfacts.co.uk, comments: "A few months ago Moneyfacts reported that borrowers could no longer find loan rates of less than 7%: now there are just seven providers offering rates less than 8% and this number is dwindling fast.

"The lowest rate currently on offer is 7.6% from yourpersonalloan.co.uk, which is available for loans of between £5K and £25K. However, it is only available to homeowners, which will limit its appeal to some.

"Yourpersonalloan.co.uk rate is fixed, so if accepted this is the rate borrowers will receive. However, the majority of loans are typical or personal pricing, which means borrowers could be paying a much higher rate than that advertised.

"It is smaller loans which are seeing the biggest rate increases, with rates 6.8% higher than they were a year ago.

"Many consumers will be looking to consolidate debts as a way of reducing their outgoings, but the reduction is not going to be anywhere near as much as it once was.

"On a £10K personal loan over five years, the difference in the repayment of the cheapest and most expensive loans is £33.60 a month, so you could end up repaying £2,016 more than you need to. The difference increases further if PPI is included.

"Some consumers falsely believe that they are more likely to get a personal loan if they opt for PPI, but this isn't the case. Although not suitable for everyone, PPI does provide peace of mind to some consumers, but it usually works out more than twice as expensive if you opt for it from the provider of your loan. Independent providers offer the cover at a much lower cost."