Borrowers are being offered unsecured loans of up to £50,000 – fuelling fears that Britain is embarking on another dangerous debt binge.
This compares to the bank’s previous maximum personal loan of £30,000 and leapfrogs other lenders such as Sainsbury’s which offers £40,000 and Tesco at £35,000.
Other lenders are now expected to follow suit – adding to ballooning levels of personal debt.
Critics fear the boom in personal loans, at a time when credit card lending is soaring and growing numbers of families take out financing deals to buy their cars, will leave millions struggling to pay their debts.
The Bank of England has sounded the alarm over debt levels with its chief economist Andy Haldane warning that borrowing through personal loans was ‘picking up at a rate of knots’.
The typical interest rate charged by First Direct on an unsecured loan of £50,000 is 6.7 per cent – nearly 27 times higher than the Bank of England’s base rate of 0.25 per cent.
Someone borrowing the full £50,000 for seven years, the longest possible term for the loan, would be forced to pay £743.45 a month.
The total amount repayable would be £62,449.68 – meaning a total of £12,449.68 would be paid in interest alone in just seven years.
Borrowing £50,000 through a typical 25 year mortgage would cost £236 a month.
Experts said the huge personal loans were likely to be attractive to people who do not own a house or who do not want to apply for a new mortgage.
Andrew Hagger, a personal finance expert and founder of Moneycomms.com, said: ‘It could be that it is used by people who are renting, or by people who are happy to pay more so they don’t have to jump through the hoops to remortgage.’
Figures from the StepChange debt charity show the number of people seeking help with debt problems has hit a record high this year.
More than 300,000 people sought advice from the charity in the first six months of the year, with those in trouble increasingly likely to be younger, working part time and renting.
Credit cards, overdrafts and personal loans were the most common source of debt problems.
Mike O’Conner, chief executive of StepChange, said: ‘These figures paint a worrying picture of the reality of problem debt across the UK. Too many of our fellow citizens are struggling just to make ends meet. Problem debt is bad for your health, your relationships and the economy.’
Justin Modray, of Candid Money, said: ‘There’s an increasing worry that households may be over-extending themselves by borrowing too much money, and in this very uncertain climate that’s extremely worrying.’