Hour Payday Loans Blog

Research by the lending company, Sainsbury’s Finance, has revealed that there has been a 16.74% increase in the average interest rate on personal loans of £5,000 in the last two years alone.

The analysis, which compared all published interest rates on £5,000 loans for the months of September 2008 and September 2010, reveals that the average interest rate on a £5,000 loan has gone up from 10.67% APR typical to 12.45% APR typical in just two years. This is despite the decline in Bank of England Interest rates.

Against this backdrop of increased loan rates, Sainsbury’s Finance is one of just three banks whose published interest rates on loans of £5,000 have decreased.  The supermarket bank offers customers a market-leading rate of just 8.7%, which is 3.75 percentage points below the current average loan rate.

Sainsbury’s Finance’s research reveals that the majority of lenders have increased the interest rates they offer on £5,000 loan balances. Currently only six lenders publish rates below 9% APR Typical on a £5,000, this compares with 11 lenders who published a rate of less than 9% in September 2008. 

Furthermore two in three (67%) providers were publishing interest rates in September 2008 of 10.9% or less APR typical on a £5,000 loan, compared with just one third (33%) of providers’ published rates today on the same loan value.

When looking at loans between £7,500 and £14,999, Sainsbury’s Finance is also a member of an elite club offering one of the most competitive personal loan rates available at 7.7% APR typical, just one of just three personal loans in September 2010 offering a published sub-8% APR typical rate.  This compares with just 10 providers publishing a sub-8% APR typical rate on this loan balance in September 2008.

Payday Loans are not included within these figures as they involve lending up to £1,000 or sometimes £1,500 and often comand much higher rates. However, the APR cannot really be compared as payday loans are only every borrowed for up to 1 month.

The UK loans market, along with the rest of the world, took a massive hit when the global recession took hold.

It could be argued that the Unsecured Loans market took the biggest hit. But why?

One of the problems that hit banks and lending institutions was the inability of some of their customers to pay back the money they borrowed. The debt “went bad” and the banks had to simply say they were never going to get their money back from some customers. The main source of these “bad debts” or “defaults” was from the unsecured loan and tenant loan market. Secured Loans and Mortgages have the security of the asset they are secured on so in some cases, but not all, they were deemed safer as assets could be gained if the debt could not be paid from the customer.

So, where does that leave the UK Unsecured Loan market now? A few years ago you would have had the choice of Blackhorse Finance for tenants and homeowner as well as Welcome Finance for tenants and homeowners. Blackhorse Finance will still lend to homeowners but Welcome Finance and Citi Financial have long gone in the UK broker loan market.

Payday Loans came from the US and have allowed customers to borrow from £100 to £1,000 on a very short term basis but the larger loans over a longer period seem to be an area of the market that is very hard to secure any borrowing. There are rumours that Payday Loans lenders may look at extended repayment periods and higher loan sizes but it is slightly unknown at the moment when this may happen.