Consumers looking to take out a small loan to help them cope with unexpected financial costs during these uncertain times will find that average loan rates on modest sums have increased year-on-year.
Data in the latest Moneyfacts UK Credit Card Trends Treasury Report shows that the average loan rate on sums of £5,000 to be repaid over three years has risen by 0.3% year-on-year, from 6.8% in March 2019 to 7.1% in March 2020.
In addition to this, at a time when many consumers are worried about their finances, it could be better off for borrowers to hunt around and consider a less familiar name when choosing a loan, as the data from the report found that high street providers on average charge 1.1% more for a loan of £5,000. High street providers offering loans of £5,000 over three years charge an average of 7.8%, while other providers charge an average of 6.7% on the same sum and repayment term.
Unsecured personal loan market analysis
|Average loan rates
|All lenders £5,000 over three years
|High street providers £5,000 over three years
|Other providers £5,000 over three years
Source: Moneyfacts Treasury Reports
Commenting on the increase in unsecured personal loan rates, Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “Considering the current economic conditions, it is important that prospective borrowers keep a close eye on the market, as unsecured personal loans are priced based on risk. As we saw during the financial crisis in 2008, loan rates can increase quickly when there is a spike in risk. These loans are not tied to someone’s home, like a mortgage would be, so lenders would have no security should a consumer default.
“It may take a few months for the market to adjust to any external influences, but consumers can still find competitive rates – although they are starting to rise. If borrowers are keen to apply, speed is crucial. As with any debt, it is vital that consumers ensure they are able to keep up with repayments regardless of any changes to circumstances.”