Unsecured lending rates increase despite low base rate

Independent financial research company Defaqto highlights the increased cost of unsecured loans.

The research outlined in Defaqto's latest banking report reveals that over the past 3 years, despite the bank base rate falling to a historical low of 0.5%, the average interest rate of an unsecured personal loan1 has increased from 8.8% in 2007 to 12.9% today.

Kevin Bray, Insight Analyst for Banking said "The increasing cost of unsecured lending reflects the lack of appetite for risk in this area with many providers suffering from high arrears and default rates. Additionally the number of providers has reduced by a third since 2007 and of those remaining the focus has been on offering unsecured products to their existing customers."

Mr Bray added "There is some good news for consumers following the recent announcement from the Government about changes to credit card rules and in particular how payments are allocated. From January 2011 providers must allocate payments to the transactions attracting the highest rate of interest and this is expected to collectively save consumers between £300m - £500m."