Cost of personal loans soars by a third

THE cost of the average personal loan has soared by more than a third over the past three years despite plummeting interest rates, new figures show. The typical rate on a £5,000 loan repaid over three years has jumped from 8.8 per cent in April 2007 to 12.9 per cent now, according to financial researchers Defaqto.

Over the same period the Bank of England base rate has fallen from 5.25 per cent to a record low of 0.5 per cent that has remained unchanged since March last year. Defaqto blamed the rise on an increase in the number of defaults on personal loans and a decline in competition as more lenders withdraw from the market.

There are now just 38 lenders offering personal loans, down from 60 in April 2007, while the number of different loan products available has dropped from 88 to 56 in three years.