The cost of consolidating debts with an unsecured personal loan has increased since the outbreak of the coronavirus, despite the base rate being at an all-time low.

Research by Moneyfacts found that the average interest rate on an unsecured personal loan of £5,000 repaid over three years was 7.1% in January but stands at 7.4% now.

The typical loan rate for repaying £10,000 over five years has remained at 4.5% since January, despite the base rate standing at 0.75% in January but just 0.1% in June.

The rate was cut to 0.1% on 19 March, just a week after an emergency reduction from 0.75% to 0.25%.

Rachel Springall, finance expert at Moneyfacts, says: “Unsecured personal loans are an ideal way for consumers to consolidate multiple credit card debts into one neat repayment package, plus, unlike a credit card, loans provide a fixed regular payment structure and a clear date of when the debt will be paid off.

“Credit cards are a lot more flexible, and can provide a 0% introductory offer for consumers who want to prioritise paying off their accumulated debt, such as with balance transfer credit cards. However, their flexibility can also be a double-edged sword, as consumers could easily drop to paying just the minimum repayment and make little dent into settling their debt.”

Moneyfacts is advising borrowers who are thinking about taking out a personal loan to act now as it is becoming more expensive to consolidate debts.

One such rise was on the Nectar loan offered by Sainsbury’s Bank, increasing by a substantial 3.3% APR, to 6.9% APR (previously 3.6% APR) for loans between £5,000 and £7,499 for a term of one to five years.

This change resulted in the loan falling out of the top rate tables and at a rate of 6.9%, this is currently double the rate of the market leader for this loan amount from Tesco Bank at 3.4% APR.

“Lenders adjust their loan pricing in reaction to the changing market, so if they feel lending money out in the current environment is riskier, they can increase rates or pull out of the market entirely. This movement would echo what was seen in the aftermath of the financial crash. Indeed, since the start of March 2020, besavvi, Admiral and Ikano Bank have pulled their loans to new customers,” says Springall.