Unsecured personal loan rates hit six-year high
Unsecured personal loan rates have risen to their highest level in six years for loans worth more than £7,500.
According to the latest Treasury Trends Report on Unsecured Loans from Moneyfacts UK, the unsecured consumer loan market has seen a series of rate hikes recorded in the second quarter of 2022.
For personal loans of £7,500 or more with a repayment term of five years, an average quarter-on-quarter rate hike of 0.8% was reported. The average rate on this loan amount is now 5.2% – a six-year high.
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Rachel Springall, finance expert at Moneyfacts, noted that the £7,500 level is “widely used as a representative APR level by many loan providers, and traditionally lenders would be conscious to keep this competitive”.
“However, during a cost of living crisis, the potential risk of borrower default is high, so lenders have decided to reprice in response,” she added.
“A few lenders who charge less than 3% remain in this space, but it is uncertain whether this will be maintained in the coming weeks.”
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Average rates for £5,000 three-year unsecured personal loans have also risen, but the cost of three-year short-term loans has fallen slightly in recent years from an average rate of 14.8% in June 2020 to an average of 14.2% in June 2022.
“Anyone comparing offers, whether consolidating debt with a loan or transferring their credit card balance to an interest-free offer, would be wise to check their credit score before applying,” advised Springall.
“The coming months are uncertain amid the rising cost of living, but it’s wise to seek advice from a debt counseling charity if borrowers are struggling or fear they won’t be able to keep up with their refunds.”
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