Loan rates rise

In recent weeks a number of lenders have raised their interest rates on personal loans, suggesting the days of loans with rates below 6% could be coming to an end.

The AA, Moneyback Bank and Northern Rock, have all hiked their rates from 5.6%. Moneyback remains the lowest after increasing its rate from 5.6% to 5.8%. However their offer requires customers to sign up for payment protection insurance. Northern Rock has increased its lowest rate from 5.7% to 5.9%, and the AA from 5.9% to 6%.

The cheapest deal currently available is 5.7% from Masterloan, a subsidiary of Barclays. Abbey is offering loans from 5.8%.

Fierce competition in the market had driven rates down to sub 6%. Six months ago 10 lenders offered rates below 6%, but today there are only seven.

Industry experts suggest it is becoming more difficult for lenders to reduce their rates because the Office of Fair Trading is likely to clamp down on the selling of payment protection insurance which is a highly profitable product for lenders and subsidises low loan rates.