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Personal loan rates are ratcheted up

Alan O'Sullivan, This is Money

Nationwide will raise some of its loan rates higher than the interest on its credit card later this week in a sign of the ever-present credit crunch.

The nation's largest building society will follow the majority of lenders by raising its rates by up to 1% tomorrow, leaving the rate on its 1-3,000 loan at 17.4% - 1.5 percentage points higher than the rate on its credit card.

This means it rates some of its personal lending as risky as its credit card debt, a sign of institutions' tightening lending practices follow the credit crunch.

It would now be cheaper for Nationwide customers to bypass a loan and instead pay for any services or products using their credit card traditionally a much more expensive form of borrowing.

It follows a spate of rate increases in the loan market over recent weeks. Barclaycard, Lombard Direct, AA, NatWest and Tesco Personal Finance all pushed some of their rates up in the last two weeks. On top of this, Barclaycard has pulled the one time best buy product offered through its Masterloan brand.

Since the beginning of the year, more than half of lenders offering personal loans have made changes to their rates, according to price comparison website Moneyfacts.co.uk.

Black Horse has increased rates for those looking for smaller loans - less than 1,000 - by as much as 11%, adding 52.68 in additional interest over a year. NatWest has increased rates on the largest loans - more than 25,000 - by 1.5%, adding 1,015.20 to the total cost.

Michelle Slade, analyst at Moneyfacts.co.uk, said: 'It's not only mortgage rates that continue to increase, so too have the rates and monthly repayments on personal loans.'

Other banks that have increased their personal loan rates by one percentage point or more recently include Royal Bank of Scotland, Halifax, First Trust Bank and Northern Bank.

But it's not all bad news, some lenders have also bucked the trend and reduced rates in the last few months. Moneyback Bank, Britannia Building Society, Yorkshire Bank and Clydesdale Bank have all reduced selected rates since the beginning of the year.

In particular, Yorkshire and Clydesdale have reduced rates on their 5,000 loans by as much as 7%.

Borrowers are advised to keep in mind that the typical rate advertised on most loans are for larger amounts. The rate for a smaller loan may be much higher, and should be checked in advance to applying.

Never assume the rate you see will be the rate you get; a typical rate has to be offered to at least 66% of customers. This means 34% of customers will be charged at a higher rate.

Source:
http://www.thisismoney.co.uk
 
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