Esther James, analyst at Moneyfacts.co.uk said: “Family finances continue to be stretched, causing many to consider consolidating existing debts into one loan as a means of reducing monthly outgoings. Borrowers, however, will find that the reduction may not be as great as expected.”

According to Moneyfacts.co.uk’s research, 14 lenders have increased loan rates in the last month, with some making two increases in that time. And, the difference can soon add up. Ms James explained that as Abbey has increased rates by five per cent to 12.9 per cent on loans of less than £4,950, if a consumer borrowers £4,950 from Abbey, they will be charged around £165 per month, a total of £5,616 over three years.

She continued to say: “Anyone looking to consolidate their debts needs to make sure they shop around. Remember that if you opt for payment protection insurance, the lowest rate doesn’t always mean the cheapest loan.”

Commenting on this bad news for consumers, Andrew Hagger at Moneynet.co.uk, said: “Although we’ve started to see a steady reduction in fixed rate interest rates in recent weeks, the cost of personal loans from some of the UK’s biggest lenders are still heading skywards and increasingly playing into the hands of doorstep lenders.

“With the ongoing tightening of credit scorecards by high street providers, some of those seeking unsecured borrowing will face the prospect of even higher monthly repayments or being turned down for loans which they would have previously been accepted.”

As a result, it is recommended to compare the loan market thoroughly before settling for a deal. Fairinvestment.co.uk’s free loan calculator can help you compare the loan market today.

© Fair Investment Company Ltd