Blow for borrowers as interest rate on loan repayments double

Interest rates on loan payments have doubled over the past two years, according to new research.

Analysis from Totally Money highlights the ongoing issue of soaring interest on loans during the cost of living crisis.

As inflation has hiked the prices of goods and services, more households are turning to credit to make ends meet.

To mitigate the damage caused by inflation on the economy, the Bank of England has hiked the base rate numerous times in the last year to 5.25 percent.

One of the consequences of this is that the interest rate for borrowers has risen substantially over the period.

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The credit experts’ research revealed the interest rates on best buy loans for £3,000, £5,000 and £10,000 have all doubled.

Totally Money has found the average cost of a market-leading £3,000 loan has increased by 3.18 percentage points.

This means that borrowers will have to pay an additional £145 over the space of 36 months as a result.

On top of this, interest rate hikes to some of the best £5,000 loans have led to an extra £308.88 jump in interest rate charges.

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For these loans, the average APR has more than doubled in the last 48 months from 3.30 percent to 7.30 percent.

Customers of lenders are now 21 percent less likely to be eligible for a loan in light of this, according to Totally Money.

Furthermore, the Bank of England has predicted an increase in both the demand for unsecured loans and the number of defaults, between October and December this year.

Andrew Hagger, a personal finance expert at Moneycomms.co.uk, emphasised the day-to-day reality for borrowers straddled with these soaring rates.

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He explained: “It’s not just credit card and overdraft borrowing costs putting a drain on consumers’ finances — opting for a personal loan has become a lot more expensive too.

“For people looking to borrow to change their car, carry out some home improvements or consolidate borrowing, interest rates are now more than double what they were before the base rate hikes began.

“An extra few pounds each month may not sound like a big deal, but when you look at the full term of the loan it’s a major extra cost — for example borrowing £10,000 over five years will set you back £863 more in interest costs.”

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