There gap between the official interest rate and the one bank’s are charging consumers is growing.
Banks are increasing the cost of personal loans – pushing up their profit margins - despite the Bank of England cutting the base rate three times.
On a £5,000 loan, the average interest rate is up 0.71 to 10.16 per cent, while on a loan of £7.500 this figure has risen by almost a full point to 8.88 per cent.
Conversely, the base rate has fallen to 5 per cent over recent months..
Statistics also suggest that the Bank of England's attempt to stabilize the economy through the base rate is failing miserably. The high street banks seem to be setting their own interest rates paying no heed to advice given by the Bank's Monetary Policy Committee (MPC).
Finance giants are seeking to rake in more cash from British consumers as they try to fund the huge losses generated from suspect loans in the US housing market.
Banks are taking a much tougher line on who they will lend to. In the last six months, it is estimated that 1.38milllion loan applications have been rejected.
For people struggling with debt repayments and higher bills for energy, mortgages, petrol, council tax and food, these refusals threaten financial disaster.
Many of the leading debt counselling services saw a sharp rise in the number of so-called wealthy Middle Britain families asking for help.
Today’s credit crunch on loans is also impacting on the availability and cost of mortgages, overdrafts and credit cards.
Recent studies indicate that many mortgage offers have been withdrawn from the market and the cost of fixed rate deals is up significantly.
Interest rates on credit cards are rising are further squeezing consumers by introducing annual fees, reducing credit limits and , in some instances, even taking cards away.
Despite cuts in the official base rate, there has also been a rise in interest rates on overdrafts.
City analysts think the shortage of credit is responsible for downturn in both the property market and high street sales, threatening to further propel the country into a recession.
Financial analysts at internet site MoneyExpert.com reveal that interest rates on some personal loans are becoming extortionate. The highest rate they found on a £5,000 loan was a massive 29.9 per cent with Citi Financial Loan. Others were offering 16.9 per cent and 13.4 per cent.
By contrast, the firm Your Personal loan is charging a rate of 6.9 per cent on £5,000 for home owners. This compares with 7.4per cent at Wesleyan Personal Loan and a slightly higher 7.9 per cent at Moneyback Loan.
The highest rates for a £7,500 loan were 10.9-11.9 per cent. The most attractive offers were an Asda Personal Loan at 6.9 per cent, followed by Tesco and Moneyback at 7.2 per cent.
"The Bank of England has a battle on its hands to regain confidence in the credit markets when lenders react to three rate cuts totalling 0.75 of a point by actually increasing rates”, said Sean Gardner, founder of MoneyExpert.
"The unsecured loans market is almost mirroring the mortgage market where the issue is not so much rates but availability, whether or not lenders will let you have the cash."
In view of the fact that there are so many rates available, he feels that customers need to shop around carefully to make any savings.
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