Cahoot loan rate soars by a third

Clare Francis at http://business.timesonline.co.uk

Cahoot, the Abbey-owned online bank that used to pride itself on offering competitive rates, will be charging loan customers nearly three times more than Bank rate from a week on Tuesday.

The bank enraged customers last week when it announced it was increasing the rate on its flexible loan from 9.4 per cent to 14.9 per cent on December 19, having already raised it from 9.1 per cent last Wednesday. Bank rate is currently 5 per cent.

Someone with a £5,000 loan paid back over three years, will see their monthly payments jump from £158.40 to £170.82, costing them an extra £149 a year, according to Uswitch, a price-comparison site.

James Alexander of Zopa, a lending site that cuts out the banks, said: “This is another classic example of the banks doing the dirty on their customers.”

Stuart Glendinning at Moneysupermarket, a comparison site, said the move showed the downsides of flexible loans. “Providers can up the rate at any time. This move from Cahoot serves as a reminder that people should read the small print before taking up any financial product.”

In its letter to customers, Cahoot does state that they can move to a different deal without penalty. Customers can apply for an Abbey loan with a typical rate of 5.8 per cent. There is no guarantee borrowers will get this rate, though, because it will depend on your credit score.

A survey of 11,000 loan applicants who used Moneysupermarket found only 48 per cent applying for the Abbey loan had been offered 5.8 per cent. The remainder had been offered 6 per cent to 9 per cent.

The number of personal loans below 6 per cent is dwindling. Northern Rock, Moneyback Bank and the AA have all recently increased their loan rates for new customers.

Nick White at Uswitch said: “People planning to take out a loan in the next few months should act now.”