Ten year high for loans under £5000

Recently released figures have shown that the interest rates on personal loans for a sum of less than £5000 have reached their highest level in ten years, whereas the interest rates on loans for sums higher than £5000 have fallen, which means that it will cost more for consumers to take out smaller loans than it will for loans of higher amounts.

Officials have said that the situation means that it can cost consumers nearly £500 less in interest to take out a larger loan for more than £5000 than to take out a smaller loan of £5000 or less. Since 2006 the interest rates on these loans have been increasing according to officials. However, more recently the rates on loans for over £5000 have become far more competitive and have been falling.

The interest rates on loans for £5000 or less, however, have still been rising, and borrowers that take out these smaller loans are now paying up to 135 percent more for their borrowing than they were just four years ago. Officials have said that based on this it could actually prove to be more cost effective for borrowers to opt for a higher loan amount than a lower amount.

Financial industry expert, Tom Moss, said that this had created a real impact on those looking for a smaller loan. He said: “The credit crunch has really impacted borrowers who are looking for smaller loans. Not only is it more difficult to get a loan, with many lenders tightening their approval criteria, those that do manage to get one will undoubtedly pay through the nose. Previously lenders kept their rates consistent with the Bank of England Base Rate, but since it dropped to a record low, banks have used this as an excuse to release the reins and increase the cost of lending massively.”