Are the banks taking us for a ride? Personal loans are more expensive than ever

Despite the massive government and tax payer support for the banking industry, the banking industry still seems reluctant to lend.

Over the past 18 months, the banking industry has received massive support from the UK government and tax payer. A cornerstone of the government's plan for economic recovery has been to pump billions of pounds of cash into the banking industry to with the view that this will in turn be lent out to both individuals and businesses.

In addition to making cash available, the bank of England has kept interest rates at the historic lows of 0.5% for almost a year. Most forecasts suggest that these rates will remain well into 2010.

Given the combination of available cash and low interest rates, I find it surprising and not a little concerning that banks seem to be making borrowing for both individuals and businesses extremely difficult.

Particularly worrying is the rate of interest that banks are charging their customers. Interest rates currently being advertised for personal loans are averaging around 10% for loans over £7500.

In many cases, the actual rates offered to borrowers are much higher. I have heard of offers of personal loans being made of between 15%-18% to people who have exemplary credit histories. I find this surprising given that the cost at which banks are borrowing from each other is considerably lower than 4-5 years ago when the bank of England lending rate was at 5%.

Of course it is right and proper for banks to be cautious. Before the start of 2008, borrowing had become far too easy and money was being lent to individuals who should not have been given loans.

However, I would argue that the banking industry is being too restrictive. If an individual with exemplary credit history and stable financial circumstances is unable to take a personal loan of above £7,500 for less than 10% interest, I believe that the question should be raised as to whether banks are profiteering.

Bank lending is the key to kick starting the economy. Spending from goods sold in the high street to big ticket items such as cars will only start to recover with the support of sensible lending. Lending to business is also vital if a fragile economic recovery is to be supported.

As such, I believe that charging exorbitant interest and an over cautious attitude to lending will serve to hold back growth. If banks attitudes to lending do not change, a real economic recovery could still be a long way off.