One in three personal loans pays off debt

Almost a third of personal loans taken out during the past year were for debt consolidation and a quarter of such borrowers go on to run up more debts, according to a new survey.

According to U Switch, a comparison website, 26 per cent of people who took out a debt consolidation loan went on to run up additional debts averaging £2,221.

It added that six per cent of people who took out an unsecured loan had to borrow more money to keep up with their repayments.

The group said 85 per cent of people who took out a debt consolidation loan were not asked by their lender about using it to pay off their existing debts.

It also claimed banks were failing to properly assess affordability before lending money. It said its survey found that 15 per cent of people earning £10,000-£14,999 a year who took out a loan were lent between £10,000 and £12,499.

Meanwhile, research from Money Expert found average personal loan rates have increased from 10.62 per cent at the beginning of the year to 11.4 per cent, despite interest rates being cut by 0.25 per cent during the period.

Source:-http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2008/04/04/ncredit704.xml