While fixed-rate mortgages have begun falling in recent weeks, the cost of personal loans from some of the UK's biggest lenders are still on the up – and they are increasingly playing into the hands of doorstep lenders.
In the past month alone, lenders including Yorkshire Bank, Tesco Personal Finance, Mint, Direct Line, Lombard, AA, Intelligent Finance and Barclaycard have increased rates by between 0.2 and 2 percentage points APR.
With the ongoing tightening of
credit scorecards by high-street providers, some of those seeking unsecured borrowing now face the prospect of even higher monthly repayments or being turned down for loans for which they would have previously been accepted.
The tough economic conditions will see doorstep lenders flourish in the aftermath of the credit crunch as the bigger lenders become far more selective about which customers they are prepared to lend to.
One of the biggest doorstep lenders, Provident Financial, has already reported a 34 per cent rise in first-half profits.
While borrowers may still be able to get their hands on unsecured funds, some are now faced with paying rates they would have dismissed out of hand not so long ago. The average rate for a £2,000 personal loan has risen from 14.6 per cent APR two years ago to 18.09 per cent APR now.
Someone borrowing this sum over three years faces paying an additional £105.48 over the term.
Increasing numbers of people are tarnishing their credit record as they struggle to cope with higher mortgage and utility costs. Having been turned down once by high street lenders, consumers are now finding themselves being forced to pay "subprime" rates of interest.
Although regulators have tried to introduce more controls in doorstep lending, rates of more than 100 per cent a year are still being reported.
Unfortunately, many people don't read the small print on these agreements and don't appreciate the severity of penalties for missing payments. If they kept track of the loan amounts they received and how much they end up paying back, the new breed of doorstep borrowers would be astounded.
• Andrew Hagger is head of communications at Moneynet
