Unsecured personal loan rates reach six-year high
Unsecured personal loan rates have grown to their highest point in six years for loans over the value of £7,500.
According to the latest Moneyfacts UK Unsecured Lending Trends Treasury Report, the unsecured consumer lending market saw a spate of rate rises recorded during the second quarter of 2022.
For personal loans of £7,500 or more with a repayment term of five years, an average 0.8 per cent quarter-on-quarter rate rise was reported. The average rate on this size of loan is now 5.2 per cent – a six year high.
Read more: Close to half of all workers have borrowed to make ends meet
Rachel Springall, finance expert at Moneyfacts, noted that the £7,500 tier is “widely used as a representative APR tier by many loan providers, and traditionally lenders would be conscious to keep this competitive.”
“However, during a cost-of-living crisis, the potential risk for borrowers to default is elevated, so lenders have moved to reprice in response,” she added.
“A few lenders that charge less than three per cent remain in this space, but whether this is maintained in the weeks to come is uncertain.”
Read more: £7.9m returned to Lendy investors as RSM fees approach £5m
The average unsecured personal loan rates for £5,000 over three years have also risen, however the cost of shorter-term three-year loans has dropped slightly over the past few years, from an average rate of 14.8 per cent in June 2020, to an average of 14.2 per cent in June 2022.
“Anyone comparing deals, whether that be to consolidate debts with a loan or move their credit card balance to an interest-free deal, would be wise to check their credit score before they apply,” Springall advised.
“The months ahead are uncertain amid the rise in the cost of living but seeking advice from a debt advice charity is wise should borrowers be struggling or fear they will be unable to keep up with their repayments.”
Read more: Open banking mooted as solution to SME financing woes