In the last two weeks they've been in overdrive despite Bank rate being frozen at 5%. Since April 28 alone, six providers have altered their rates including some of the market leaders. Tesco has increased its rate from 6.8% to 7.4%; Moneyback Bank, which is owned by Alliance & Leicester, has hiked its interest from 6.9% to 7.2%; Direct Line has upped its monthly repayment charges from 7.4% to 7.7%; Alliance & Leicester's (A&L) interest rate has moved from 7.7% to 7.9%; and NetCars has increased its loan charges from 16.9% to 18.9%. Only NatWest has bucked the trend by lowering rates from 8.9% to 8.4%.
The surge in interest rates has dealt a further blow to Britain's cash-strapped households. According to Creditaction, a charity organisation, total UK personal debt at the end of March stood at a worrying £1,430bn - an increase of £113bn on the previous 12 months. As a nation, our personal debt is rising by a staggering £1m every five minutes.
Interest repayments have also soared. Households pay an average of £3,765 each year in interest - £340 a year more than they paid 12 months ago.
Consequently, it's become more important than ever to shop around for the most competitive rates and to apply carefully.
What are the market-leading personal loan rates?
The good news for borrowers is that there are still a handful of attractive deals out there.
Someone looking to borrow £5,000 over three years could get a rate of 7.3% from Barclaycard loan. The monthly payments would be £154.54 and including interest and all other charges, you would repay a total of £5,563. Alternatively, Moneyback Bank is offering a rate of 7.8%. This would equate to payments of £155.61 a month and over the three-year term it would cost you a total of £5,602.
However, these rates are only available to those with good credit scores. If your credit history is less than perfect you need to be careful when applying for any form of borrowing. Remember that each rejected application will leave a black mark on your profile and may ultimately prevent you getting a loan elsewhere - so do some research before applying for a loan. Our Smart Search tool will help identify the deals you are likely to have access to based on your credit profile.
For example, if you have a fair credit rating you could pick up a £5,000 loan from UCC at 17.9% giving you monthly repayments of £177.22. Over the three-year term this loan would cost you £6,322 in total. For people with poor credit ratings, CitiFinancial has a personal loan at 23.1% meaning monthly repayments of £188.28. Interest and charges would add an extra £1,778 to the initial loan amount.
Should you consider a secured loan?
Secured loans are available for higher amounts and often at lower rates of interest than unsecured loans because you, as the borrower, are offering some form of equity to the provider. Generally this will be a property - therefore, if you can't meet repayments there is a risk that your home could be repossessed. As a result, secured loans should only be taken by those who are sure they can meet repayments.
However, better rates are available. The leading homeowner loan rate in the UK is offered by First Plus exclusively through moneysupermarket.com at 6.6%. Therefore if you took out a £10,000 loan over 60 months you'd be making payments of £195.23 a month. Over the five-year term this would cost you £11,714 in total.
Those with less than perfect credit scores are again advised to shop around with our Smart Search tool. However, competitive deals are available from the likes of Central Capital Loans at 8.6% and, for those with poor credit, Norton Finance at 12.4%.
What else should you consider when applying for a loan?
Just a couple of weeks ago we published an article entitled 'Need a loan? Read this first' offering tips to consumers considering a loan application.
The key however, is to think carefully about your circumstances before you apply. Don't rush into an application - see if you can avoid taking out a loan altogether with some budgeting and financial savvy. Cutting your costs on other financial products such as car insurance, utility bills and broadband could reduce your outgoings and if you can increase your income too you may be able to turn the corner without a loan.
Finally, if your circumstances are particularly severe, remember that a loan might not be the best solution. According to the Insolvency Service 25,264 people fell victim to the insolvency epidemic in the first three months of this year alone. Consumer debt has now reached £1.4 trillion. To save yourself from joining these statistics you must make an informed decision about the right financial action to take - visit our debt channel for further help and advice.
Have your say: Are you finding it hard to make ends meet but struggling to get a loan? Our members may be able to help on our community forum. Don't forget to vote in this week's poll: Has the government and the Bank of England lost control of the economy?
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
THINK CAREFULLY BEFORE SECURING DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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