Lenders squeeze profits from personal loans

Borrowers are facing increasingly high repayment terms on personal loans, according to new analysis.

The trend has become even more marked in the last fortnight, with a host of lenders pushing up selected rates. These include Barclaycard's rise of 0.5 per cent, Lombard Direct increasing by one per cent and NatWest by 2.5 per cent.

Barclaycard has also withdrawn its best buy loan through its Masterloan brand.

It is the latest sign that lenders are looking to shore up profits in the face of the credit crunch.

Michelle Slade, an analyst at Moneyfacts, which conducted the research, said: “It's not only mortgage rates that continue to increase, so too have the rates and monthly repayments on personal loans… Since the beginning of the year more than half of lenders offering personal loans have made changes to their rates.”

Black Horse has increased rates for those looking for smaller loans by as much as 11.0% points, adding £52.68 in additional interest on a £1,000 loan paid over one year.

Larger loans have also been hit. NatWest has increased rates on a £25,000 loan over five years by 1.5% points, adding £1,015.20 to the total cost.

Despite the hikes, there are still some good deals available to those who shop around.

Moneyback Bank, Britannia BS, Yorkshire Bank and Clydesdale Bank have all reduced selected rates since the beginning of the year.

Anyone looking to take out a £5,000 loan with Yorkshire Bank or Clydesdale Bank will have seen rates reduced by as much as 7.0%.

It is worth bearing in mind that smaller loans cost more in interest. Black Horse for example now charges 27.9% on a £1,000 loan over one year, but only 16.9% on a £7,500 loan over five years.

Another tip is to avoid Payment Protection Insurance (PPI) from the loan provider. PPI has been subject to an investigation by the Financial Services Authority, the City regulator, following complaints that the policies were mis-sold and people were unable to claim because of caveats in the policies.

Source: http://business.timesonline.co.uk