Cahoot, the online bank which is part of Abbey, have announced a huge increase in the interest rate for customers with flexible loans.

A flexible loan allows the borrower to decide how much they will repay each month. This can be a useful feature for the self-employed, or anyone else with a fluctuating income. The disadvantage is that this type of loan is likely to cost more and the interest rate can vary.

However, although customers expected some variation in the rate, they were shocked at the sharp increase from 9.4% to 14.9%. This is a rise of almost 60%. Some people may not be in a position to switch to a more competitive loan and could have difficulty in repaying the debt.

Cahoot say that their flexible loan rate is still comparable to other lenders and that they have followed the required procedures to inform customers. They are also encouraging customers to switch to an Abbey fixed rate loan. Existing customers will not have to pay penalty charges to switch to another deal. However, they will have to go through credit checks so the offer is not guaranteed.

Cahoot is no longer offering any new loans or credit cards, but is now concentrating on current accounts and savers.

However, although retailers selling gifts such as jewellery, clothes and MP3 players are forecast to do well, the prospect for supermarkets is not so encouraging. Food sales are likely to remain at previous levels and consumers may well choose to support smaller high street shops rather than large supermarkets.

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