News
Unsecured lending rates increase despite low base rate
Kevin Bray, Insight Analyst for Banking
Over the past three years, despite the bank base rate falling to a historical low of 0.5%, the average interest rate of an unsecured personal loan increased from 8.8% in 2007 to 12.9% today.
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.”
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.
| April 2006 | April 2007 | April 2008 | April 2009 | April 2010 | |
|
Bank of England base rate
|
4.50% | 5.25% | 5.00% | 0.50% | 0.50% |
| Average unsecured loan APR | 8.1% | 8.8% | 10.2% | 12.2% | 12.9% |
|
Average typical APR for credit card
|
15.7% | 16.7% | 17.2% | 17.7% | 18.2% |
