Low Base Rate Bears No Resemblance To Loan Rates
The Bank of England base rate of interest for loans and savings has now been at its lowest level in the entire 300 year history of the Bank, remaining at just 0.5 per cent for the past fourteen months, yet this low rate is still not being reflected in the rates charged by lenders for a new personal loan.
Despite the fact that the base rate has remained so low for so long and also that interest rates on savings accounts with banks and building societies have plummeted over this time, the interest rates being charged on a typical personal loan for a customer have remained stubbornly high over the same period, in some cases with personal loan rates actually increasing.
This high level of interest charge on new loans just goes to show how reluctant lenders still are to offer competitive loans to individuals, at interest rates which are a more realistic reflection of the current economic conditions.
It is a well known fact that banks and building societies have had a tough time financially over the course of the past two or three years and disproportionately high interest rates on new loan products not only reflects their reluctance to offer loans, but also gives them an easy way to rake in the money and restore their balance sheets.
Although there is a huge difference between the Bank base rate and typical personal loan rates at the moment, many financial experts acknowledge that this is due to the increased risk to banks on offering loans in the current economic and financial situation.
One loan industry expert commented on the disparity, he said “We are seeing, especially in the mortgage market, credit cards and loans, that there is not a direct association between the Bank of England rate and what customers ultimately pay.”
