According to figures that have been recently released banks are now making record profits on personal loans because of the extortionate rates of interest being charged compared to the rock bottom base interest rate.
Banks have been receiving bad press for the past couple of years as a result of many different factors, and it appears that the banking industry could be in the line of fire once again following revelations about the level of profit that banks are making on personal loans. It has been revealed in a recent report that banks are charging the highest interest rates on personal loans in the last ten years, leaving customers out of pocket and making record profits themselves.
Figures have shown that the average rate of interest being charged on personal loans is nearly twelve and a half percent, and this compares to the rock bottom 0.5 percent base interest rate set by the Bank of England. The margin between the base rate and the rate being charged to borrowers is now huge, and this means that banks are really cashing in by charging customers these higher rates.
One industry official said that competition in the loans market had plummeted and strict controls on Payment Protection Insurance may have contributed to higher loan rates from lenders. He said: ‘With unemployment at a near 13 year high of almost 2.5 million, and many families struggling financially, it is no surprise that the level of competition in the unsecured loan market has subsided.’
He added: ‘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. With banks and building societies still adopting a far more cautious stance even when it comes to mortgage lending, even with your property as collateral, it’s no surprise that the appetite for unsecured lending has pretty much dried up.’
Source - Daily Mail