LOANS of contention
0 Comments | Daily Mirror, The; London (UK), Sep 1, 2010 | by GRAHAM HISCOTT
GREEDY lenders have trebled the money they make on personal loans since the start of the credit crunch.
Research for Your Money has revealed banks and other providers are enjoying record profit margins at the expense of borrowers.
And things could get worse, with some experts warning borrowing costs will rise even higher as lenders brace themselves for a surge in bad debt.
Yet while banks have quietly whacked-up customers’ borrowing costs, the price they pay is falling.
Take the Bank of England’s base rate – what it charges financial institutions to borrow funds and which should, in theory, influence what they charge us.
On the brink of the credit crunch in August 2007, when the base rate stood at 5.75%, you’d have paid on average 9.1% to borrow pounds 5,000 over three years.
Later that year, the Bank began slashing rates to try to reduce the pressure on credit crunch-hit borrowers.Yet personal loan providers used it as a cue to jack-up rates instead.
By the time the Bank’s monetary policy committee slashed rates to 0.5% in April last year, the average loan rate had soared to 12.1%.
Since then the yawning gap between the two has widened, with the average personal loan rate rising to 12.6% even though the base rate has stayed rock bottom.
The same is true for the wholesale price banks charge each other to borrow funds, known as Swap rates.
It has plunged 60% in the last three years yet lenders have failed to pass on any of it to customers.
If that weren’t bad enough, banks have also been short-changing savers, whom they rely on for money to then lend out. The Moneyfacts research shows banks are winning both ways – increasing borrowing costs while cutting saving rates.
Since August 2007, the average five-year savings bond has fallen from nearly 6.1% to just over 4% – fattening banks profits even further. “Lenders argue they are factoring in the risk of not getting their money back but they are making customers jump through hoops to get loans,” says Moneyfacts’ Darren Cook.
“Someone who would have got a loan in 10 minutes in the past may not be allowed in the bank now. With concerns that unemployment could be on the rise again, providers may well use this as an excuse to increase loan rates even more.”
Brian Capon, spokesman for the British Bankers Association, says: “Banks have had to increase the amount of capital they hold – which is dead money not earning them income – plus they have to factor in risk and bad debts.”
His comments come as research by price comparison website Moneysupermarket.com shows that smaller borrowers are being penalised
personal loans for bad credit
