Cost of personal loans soars

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There are now just 57 different loans available for someone looking to borrow £5,000, down from 105 different deals at the beginning of the year, according to MoneyExpert.com.

At the same time the average cost of one of the loans has surged from 10.65% in January to 29.4% now.

The group said the huge rise was driven by a fall in the number of deals available for single-digit interest rates.

At the start of the year, 74% of loans were charging an annual percentage rate (APR) of 10% or less, but just 31% are now.

There has also been a jump in the number of loans offered to higher-risk borrowers as more providers adopt so-called risk-based pricing, and this has pushed up the average.

At the beginning of the year the highest APR offered on a £5,000 loan was 13.1%, but borrowers with a weak credit rating can now expect to pay between 14% and 24%, with five loans even charging rates of between 50% and 70%.

The spiralling cost of personal loan rates comes despite the Bank of England base rate being cut from 5.5% to 2% since the beginning of the year.

Sean Gardner, chief executive of MoneyExpert.com, said: "With unemployment on the up, lenders are increasingly thinking twice before offering money they're much less sure they'll get back.

"The cost of this risk is being passed on to us all with higher APRs and fewer products available."