UK banks increase cost of personal loans

UK banks are being accused of profiteering as they increase the amount they charge for personal loans and limit the best deals to existing customers.

The cost of a best buy £5,000 loan has risen 1.54 per cent since the beginning of the year to 10.78 per cent despite interest rates being at a historic low of just 0.5 per cent.

The rise means customers will spend £162 a month over three years repaying the loan, or an extra £120 over the lifetime of the deal compared to last January.

The Bank of England disclosed last week that non-mortgage or credit card based lending fell by £0.7 billion in October, but experts said the decline was expected given the restricted choice of loans available.

A spokesman for the British Bankers’ Association, said: “We have also seen the average rates for personal loans increase across the board so consumers who are lucky enough to be accepted for a loan have to pay more too.”

“The UK economy has changed considerably since the credit crunch began and it is still changing. Lenders price their loans according to the economic factors of the time, and although there is still aggressive competition for customers, there are also harsh economic realities they have to deal with.

“They still have to fund their loans using a mix of wholesale money and customers’ deposits, and neither of these options is open to them at anything like the Bank of England’s base rate.”

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