A further pressure on lenders has been the Office of Fair Trading clamp down on the mis-selling of payment protection insurance – a lucrative, high-margin product that subsidises low loan rates.
At one stage, rates for personal loans dipped as low as 5.5% APR. However, rates on unsecured loans have been climbing since the start of the year and the lowest rate is currently offered by Moneyback Bank, owned by Alliance & Leicester, at 6.3%.
Historically rates for personal loans are still very low. Furthermore, the increases in terms of the amount you pay each month it's not quite as bad as it sounds, especially if you are borrowing money for short periods.
For instance, if you borrowed £5,000 without Payment Protection Insurance over five years when the interest was 5.5%, you'd have repaid £94.77 a month with the total amount repayable £5,686.20. If you took out loan today at 6.3%, you would repay £151.62 per month, pay back a total of £5787.60 which is a difference of £1.69 per month, £101.40 in total.
£5000 over 5 years
APR Monthly Total
5.5% £94.77 £5,686.20
6.3% £96.46 £5787.60
Difference £1.69 £101.40