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Loan charges: Lending cash 'is costly to banks'

It may be no surprise that loan charges can be so high, as it can be expensive for lenders to provide people with cash.

Although the base rate of interest has been held at 0.5 per cent for a number of years by the Bank of England, mortgage broker Nigel Bedford said banks and mortgage lenders do not get their cash at this rate.

He claimed that actually, this factor has "become divorced from the true cost of lending", which is essentially based off two issues.

Firstly, there is the actual cost that banks have to pay to access the funds, followed by the expenses involved in lending it out, the expert said.

Some of these costs include the need to earmark finance through a variety of regulations, as well as the need to provide loan claims "with more compliance", Mr Bedford declared.

He said one way in which bank charges enable lenders to keep low initial rates is by increasing their standard variable rates slightly.

"Once people roll off of their initial deals, [banks] can get some money back from them in that way," the specialist asserted.

Amir Hussain
Amir specialises in personal loans, consumer debt and debt management.ADNFCR-2776-ID-801465262-ADNFCR

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