High Loan Rates Now Replacing Missold PPI

02/02/2010 by Bradders.

With banks and building societies having to come up with whatever methods necessary to keep the excessive profits coming in, a new ploy has hit the high street.Record profits are being made after hitting customers with the highest personal loan interest rates in almost a decade. Loan rates are averaging 12.4 per cent, despite the fact the Bank of England base rate is at a 300-year low of 0.5 per cent. According to the BOE the amount borrowed rose by £ 52million - to £226.4billion - in December, the first increase since June 2009.

There has rightfully been condemnation that taxpayers cash used to bail out the banks is being loaned back to the taxpayer at extortionate interest rates. The average rate on a £5,000 loan repaid over three years is 12.4 per cent. This is up from 12.1 per cent a year ago and 7.8 per cent in early 2006. In 2001 the average loan rate was 12.5 per cent, however the banks ’only’ made a 6.5 per cent profit as the base rate was 6 per cent. Thanks to the current low rate, bank profit margins are now 11.9 per cent. The latest personal loan figures were collated by the experts at the moneyfacts.co.uk website. Spokesman Michelle Slade said: ‘There is no security that a personal loan debt will be repaid. In such a risk-averse market, lenders are only offering loans to the most creditworthy applicants and then at a premium. It has been cited that a primary reason that headline interest rates are up is because the finance giants have been prevented from imposing rip-off charges on the Payment Protection Insurance (PPI).

The banks have made billions of pounds for years by charging sky-high premiums on the insurance sold alongside personal loans. There is evidence that millions of people were mis-sold ppi, which is supposed to provide payment to cover essential bills in the event of sickness or unemployment.The Competition Commission has ordered strict controls on the cost of the insurance and hard pressure sales tactics. However, it appears the industry has responded by simply putting up the price of the loans. 

With unemployment climbing close to a 13 year high of around 2.5 million, with many families struggling financially, it is no surprise that the level of competition in the unsecured loan market has subsided.Not only is the risk of defaults higher in the current economic climate, the highly profitable Payment Protection Insurance cash cow is no longer there to subsidise lower loan rates.It would seem if they can’t get you one way there’s always an alternative route. However, for anyone who believes they have been missold ppi they should act now to get their premiums back.

Posted in Banks | No Comments »