Has the era of cheap loans come to an end?

In the past twelve months, the Bank of England has raised its base rate on five separate occasions, taking it from 4.50% to 5.75%. British banks have duly passed on this extra cost to their borrowers in the form of higher interest rates on personal loans.

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