Borrowers looking for a loan can now expect to pay 8.46 per cent. With a base rate of just three per cent, consumers are paying more than a five per cent premium for their personal loan. This is compared to just two months ago, when the gap between the average loan and base rate was a more manageable 2.92 per cent.
Tim Moss, head of loans at moneysupermarket.com, said: "Loan costs are often overlooked in the frenzy of a base rate cut, when the focus is on the impact of any rate movement on mortgage payments and savings rates. What our calculations clearly show is that the cost of a personal loan is as apparently uncorrelated to base rate as mortgage rates are. The key difference though, is that mortgages are priced according to LIBOR rather than base rate - loan rates are not.
"Whilst personal loans are often seen as the ‘poor man' of everyday financial products, there is always a spike of activity post-Christmas and into the New Year when consumers take their finances in hand, and turn over that new leaf. Invariably this involves consolidation of store cards, credit cards and overdrafts. However, loans are not the cheap form of borrowing they once were. In the last two weeks, we've seen three of the top loan providers - Tesco, Asda and Yourpersonalloan (the Co-Op's loans vehicle) increased their rates by as much as 0.3 per cent, despite base rate dropping by 1.5 per cent.
"The Competition Commission's recommendations on the sale of PPI last week will undoubtedly result in loan rates soaring next year, perhaps up to around ten per cent, which means they won't be that much more competitive than credit cards. However, it's likely we could see one or two downward rate movements after Christmas as providers seek to attract those with New Year's resolutions of the financial kind, but borrowers need to keep a close eye out for the best deals and ensure they only apply for products they're likely to be accepted for. This is where our SmartSearch tool will help - enter a few basic details and we'll point you towards loans you are likely to be eligible for with your credit history. With lending criteria becoming more and more stringent, it's important to keep your credit record as clean as possible and not taint it with failed applications for loans."
