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Tuesday 6 December 2016

'Punishing' loan rates four times those of UK

Published 14/03/2016 | 02:30

Dermott Jewell, of the Consumers’ Association lobby group, has accused banks of charging exorbitant rates on personal loans, as well as fleecing those on variable-rate mortgages. Photo: Steve Humphreys
Dermott Jewell, of the Consumers’ Association lobby group, has accused banks of charging exorbitant rates on personal loans, as well as fleecing those on variable-rate mortgages. Photo: Steve Humphreys

Banks and credit unions are imposing "punishing" rates of interest on personal loans - up to four times higher than what is charged in Britain.

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Some banks here are now charging more than 12pc for loans, with rates stubbornly high, despite the European Central Bank engaging in a series of cuts to the rates that it charges banks to borrow from it.

Loans of similar amounts from banks in the UK are as low as 3.3pc. This is costing households around €4,000 more on a €10,000 loan over a five-year period, compared with Britain.

Last week, the ECB cut its main lending rate to zero, started charging banks more for depositing money with it and put in place a scheme that effectively pays banks to lend to businesses and households.

Dermott Jewell, of the Consumers' Association lobby group, has accused banks of charging exorbitant rates on personal loans, as well as fleecing those on variable-rate mortgages.

"In terms of interest rates, customers of banks in Ireland are being made to suffer the most exorbitant and punishing of rates on mortgages and loans, and the worst possible of return on any form of saving," he said, adding that this had been the case before, during and now after the recession.

"Both the Central Bank and the Government have been too complacent and cautious in their lack of support for what is a very real and national ailment for consuming citizens," Mr Jewell said.

AIB charges up to 10pc on a personal loan up to €10,000. Bank of Ireland charges 7.5pc on the same amount.

KBC Bank is at 12.7pc, with Permanent TSB charging 12.5pc.

Ulster Bank has a rate of 8.5pc, according to the State's financial comparison site, ConsumerHelp.ie.

By comparison, in France, loans for consumption average 4.42pc, while Germans pay 4.35pc for a five-year loan.

Mr Jewell said banks should cut their exorbitant rates to encourage good-risk lending to customers, which would help the domestic economy to grow.

This, he said, would help people replace household items that they had deferred replacing during the recession.

The founder of the Askaboutmoney.com website, Brendan Burgess, said both credit unions and banks were charging too much for personal loans.

He said that in addition to high loan rates, credit unions required borrowers to save at the same time as repaying their loans.

Asked about claims of excessive loan rates, a spokeswoman for the Irish Banking and Payments Federation, said: "We can't comment on interest rates as they are a matter for individual institutions in a competitive environment."

A spokeswoman for the Irish League of Credit Unions said its members were not-for-profit organisations that offered some of the most competitive loan rates on the market.

Although rates were up to 12pc, many charged far less.

She said car loans were as low as 4.95pc from credit unions, with typical home-improvement loans of 5.5pc.

Credit unions have €6bn available to lend.

The actions of the ECB last week have piled pressure on the banks to cut other borrowing rates. This is especially the case as banks here are engaged in an ongoing reduction in the interest they pay to savers.

Irish Independent

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