Death knell sounds for sub-8% loan rates

Despite three significant cuts in the base rate over the last two months, personal loan rates continue to head in the opposite direction with six providers increasing rates in the last four weeks alone.

New research from price comparison and switching service uSwitch.com reveals that today, the cheapest loan available at 8.2% APR is more than four times higher than the Bank of England base rate at just 2%. Just two months ago, best buy loan deals were available at 7.7% APR - 0.5% lower than today.

At the beginning of October the average loan rate was 9.31% APR - following the recent changes this has now increased to 9.44%. Just two months ago, almost one in four (23%) of the unsecured personal loans available were less than 8% APR, today these sub-8% deals have completely disappeared. This has pushed up the number of loans available from 8% - 9% APR from 38% of the unsecured loan market in October to 52% today.

In fact, recent activity in the loans market seems to indicate that providers are actually battling to get themselves out of the best buy tables instead of hitting the top five. One of the biggest causalities of this trend is Moneyback Bank which has consistently offered table topping loans as low as 5.5% over the past few years - they have now closed for new business completely.

Consolidation casualties

Last year, almost 1.3 million people (31%) took out an unsecured personal loan to consolidate debts. Unfortunately, with rates going up and the amount issued in unsecured personal loans dropping by 26% compared to the same month last year, this may not be as easy to do as it was 12 months ago. Sadly, UK consumers are paying £262 million in interest every day so this is something that could compound the issue of existing debt.

Louise Bond, Personal Finance Manager at uSwitch.com, comments: "The current economic climate is still unpredictable and the cuts by the Bank of England are not being felt by people looking to take out a personal loan. We have already seen six loan providers increasing rates over the last month by as much as 2%. This has marked the death of the sub-8% best buy loan era which is really bad news for consumers trying to consolidate debts."