Increased cost of unsecured loans ‘could lead to debt trouble’

Rises in the average interest rate of an unsecured loan could be placing individuals in financial turmoil.

New research carried out by Defaqto has revealed that the rates have been increasing for the last three years.

The independent financial research company’s latest banking report has shown that average interest paid on such an agreement has escalated from 8.8 per cent in 2007 to 12.9 per cent in 2010.

Kevin Bray, insight analyst for banking at the organisation, explained the reason for such rises.

“The increasing cost of unsecured lending reflects the lack of appetite for risk in this area with many providers suffering from high arrears and default rates,” the expert remarked.

He added the number of providers has reduced in the last three years by almost one-third.

Moneysupermarket.com recently warned people who have taken out a balance transfer card to consolidate their debts to check when their zero per cent deal expires.

By Joe Shervin