New research by the financial website Moneynet.co.uk has shown that the average rate on personal loans has increased by 40 per cent over the past five years.

Figures showed that consumers taking out a £5,000 personal loan over a period of three years were paying rates that rose to an average rate of 12.27 per cent. This is an increase of 3.56 per cent since August 2004.

The soaring rates have continued despite the Bank of England’s base rate falling to 0.5 per cent in the same period.

Andrew Hagger from Moneynet.co.uk attributed the costs to a downturn in lending and lack of competition between lenders as causing debt problems amongst consumers.

"When credit was plentiful lenders were keen to offer low rates to get high volumes of business, hopefully with the payment protection icing on the cake.

Now the situation is totally different, credit is tight, bad debts are rocketing and loan providers are far more cautious but operating on a vastly increased margin."

Financial comparison site Moneysupermarket.com has also found large discrepancies between personal loan rates and the bank base rate, finding consumers paying an average 10.3 per cent annual percentage rate (APR) on their loans.

The research by Moneysupermarket.com showed consumers may be better off if they are borrowing larger amounts, with rates between 8.4 per cent and 8.75 per cent for loans of over £10,000.

The trend of consumers paying too much interest also applies to fixed loan mortgages with the highest recorded interest rates for more than 20 years.