With Base Rate at just 0.5 per cent, consumers are paying a premium of nearly ten per cent for their loan, compared to a year ago, when the gap between the average loan and base rate was a more manageable 3.4 per cent. In addition, a number of lenders are restricted their best deals for existing customers only.
Even worse, those looking for loans of £5,000 are being stung the hardest. Those looking for a loan of £10,000 can expect to pay nearly two per cent less, whilst in August 2005, the difference between a £10,000 and £5,000 loan was only 0.15 per cent.
Tim Moss, head of loans and debt at moneysupermarket.com said: "Despite the Bank of England slashing Base Rate to 0.5 per cent in March, loan rates have continued to rise, leaving consumers paying through the nose for their personal loans. Borrowers looking for a smaller loan of around £5,000 will be hit harder than those looking to borrow more.
"We have seen a recent glimmer of hope as loan rates crept down slightly in August. Competition seems to be returning to the loan market which is great news for consumers; however lenders will need to continue reducing rates if they want to draw customers back, particularly those who want to reconsolidate their debt.
"Banks and building societies are more cautious about who they'll lend to than in pre-credit crunch days, which has made it much harder for consumers to get loans. Some lenders are introducing market leading deals, but these are restricted to customers who have an existing relationship. The clampdown on the sale of payment protection insurance (PPI) has caused providers to hike up prices to recoup lost revenue. As a result is has become increasingly difficult to get a competitively priced loan.
"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."
