Business News
Record high for small loan interest rates
Interest rates on small loans have reached a record 10 year high according to financial information group, Moneyfacts.co.uk. Following research into the interest rates, Moneyfacts found that small loans are coming with an average interest of 12.7% on a £5000 loan, which is the highest level since May 2000 and a significant increase from 8.6% as was previous to the credit crunch.
There have also been other research projects carried out; one such by the Bank of England, who found interest rates on £5000 loans to be a record high of 15.58% during April this year. The 3.2% rise during the month being the biggest monthly change recorded since 2005, when the Bank of England first began collecting data.
The reason for such a hike in rates? Moneyfacts proposes that these are due to customers defaulting on small loans and the interest subsequently rising to match the risk of the loan.
Payment protection plans were in place to counter the low rates we enjoyed previously; however due to mis-selling of the product, the industry is now facing a £7-£9bn compensation bill.
In contrast, if you were to take on a loan of £10,000 or more, you would find that the rates have actually decreased for the fourth consecutive month to 9.0% according to research findings from the Bank of England.
