Loan Articles

With the base rate having fallen dramatically over the past three months industry officials are now stating that the gap between interest rates on loans and the base interest rate has widened further, with high rates of interest being charged on personal loans compared to the low base rate that is now in play, which is just 2 percent.

Since October the base rate has fallen by 3 percent taking the base rate to its lowest in nearly six decades. At the same time, however, lenders have not been passing on rate cuts to consumers, and this is causing the gap between the two rates to widen.

One official said: “Loan costs are often overlooked in the frenzy of a base rate cut, when the focus is on the impact of any rate movement on mortgage payments and savings rates. What our calculations clearly show is that the cost of a personal loan is as apparently uncorrelated to base rate as mortgage rates are. The key difference though, is that mortgages are priced according to LIBOR rather than base rate - loan rates are not.”

He added: “Whilst personal loans are often seen as the ‘poor man’ of everyday financial products, there is always a spike of activity post-Christmas and into the New Year when consumers take their finances in hand, and turn over that new leaf. Invariably this involves consolidation of store cards, credit cards and overdrafts. However, loans are not the cheap form of borrowing they once were.