Newspaper article The Evening Standard (London, England)

Banks Accused of 'Profiteering' as Interest Rates on Personal Loans Soar

Newspaper article The Evening Standard (London, England)

Banks Accused of 'Profiteering' as Interest Rates on Personal Loans Soar

Article excerpt

Byline: Jonathan Prynn Consumer Business Editor

HIGH STREET banks were accused today of "recession profiteering" as it emerged that interest rates on personal loans have risen to a seven-year high.

The cost of the loans -- typically used to pay for major purchases such as a car or home extension -- have increased steadily during the recession, while the rate at which banks borrow has plummeted.

This comes despite Gordon Brown's efforts to persuade the banks to support families in the downturn.

Consumer groups said even borrowers with impeccable credit records were suffering because of lack of competition on the high street, and the banks' habit of "punishing the good for the sins of the bad" to boost profits.

The interest rate at which big banks can borrow money from the wholesale market tracks the Bank of England base rate. Currently, banks can borrow at about 0.625 per cent, just above the record low base rate of 0.5 per cent.

However, the average interest rate on a [pounds sterling]10,000 unsecured personal loan is now 10.96 per cent, the dearest since August 2002, according to Bank of England figures.

For a [pounds sterling]5,000 loan the average rate is 13.52 per cent, the highest since official monthly figures began in 2005.

Lenders claim they have had to increase personal loan rates because of the bigger risk of default at a time of rising unemployment.

Vera Cotrell, financial services adviser at consumer group Which?, said: "Borrowers are paying the price for other people defaulting and for banks not doing credit assessments properly.

"No other company could get away with saying, 'Right, we're going to charge you a lot more for this product now because of our losses.' Banks are certainly taking advantage of the loss of competition in the market. …

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