Despite the recent economic slow down and recession pushing the Bank of England Base Rate of interest to its lowest ever level of 0.5 per cent, rates on home owner loans and mortgages steadily falling and the Government pumping billions of pounds worth of funding into UK banks in order to get them offering loans again, the average cost of a personal loan has continued to increase and is still doing so.

Apart from the increase in rates, it seems that the majority of lenders have tightened their lending criteria to the point where anyone with anything other than a perfect credit rating will not have to worry about the rate charged, because they are unlikely to be accepted in the first place.

With the much tightened lending criteria and higher interest rates on personal loans, it would appear that banks and other loan companies are adopting an attitude of “Once bitten, twice shy” when it comes to offering personal loans to customers. The average rate for a loan of £1,000 is now 19.7 per cent and this reduces gradually as the loan amount becomes greater, with a personal loan for £25,000 costing, on average, between 9.5 per cent and 10.0 per cent.

Michelle Slade of Moneyfacts.co.uk said “In the last six months alone, £335 has been added to the cost of the average £25,000 personal loan, taking the total increased cost for borrowers on a £25,000 personal loan since the crunch began to a staggering £1,804. Unemployment continues to rise and lenders are worried that an increased proportion of their customers will default on their loan.

It is highly likely that new customers are paying an increased premium to cover the defaulting customers who took out loans at the previously more competitive rates. The upward trend in rates looks set to continue. Anyone in need of a personal loan, really needs to ensure they do their homework to find the best deal possible or they will be left severely out of pocket.”