Loans Costs Rising
Saturday March 22nd 2008
The cost of borrowing is increasing, despite the Bank of England dropping interest rates last month.
Furthermore the cost of a loan rose "dramatically" over base rate rises in 2007, according to new research by MoneyExpert.com.
While the base rate is now 0.5 percentage points higher than in November 2006, the average rate on a loan under £3,000 is up from 12.35 per cent to 14.9 per cent.
The rate on a loan of £12,500 is up from 7.1 per cent to 8.78 per cent.
MoneyExpert predicts the knock-on effect for borrowers is that increasing numbers of people will be forced to miss loan repayments.
It estimates 926,000 people missed loan repayments over the last six months of 2007.
"With the cost of living on the increase the obvious thing to do for anyone feeling the strain is to borrow money to tide themselves over," said Sean Gardner, chief executive of MoneyExpert.
"But people who want to take out a loan to consolidate debts or to make a large purchase must be wary of the overall cost.
"A set of monthly payments may seem manageable but you always end up repaying much more than you borrow.
"The golden rule is only borrow what you are certain you can afford to repay."
Those who fail to make payments, and end up with a black mark on their credit record, could also face paying more for future loans.
"If you have a cloudy credit record then you need to be aware that the rates you see online or in advertisements aren’t necessarily the rate you will be offered when you apply for a loan," continued Mr Gardner.
"Frankly you could end up with a loan costing far more than what you had hoped – so don’t be caught unawares."