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The number of lenders offering unsecured personal loans has fallen; a move that financial information firm Moneyfacts has called a “worrying” trend. Eskimo Loans, which is funded by the financially stricken lender Northern Rock, recently decided to pull out of the loans market with immediate effect. Other lenders that have stopped offering personal loans in the past few months include GE money, Leeds Building Society, and LV. According to Moneyfacts, the number of unsecured loan providers has fallen by 10%. It has blamed the fall on problems related to the global credit crunch, loan defaults and higher interest rates.
Moneyfacts said that a number of secured loan providers had also withdrawn their product ranges. Esther James, a personal finance analyst at Moneyfacts suggested that such a large reduction in such a short period of time was worrying. “With no signs of rate rises slowing, it's a rather unsettled market. The credit crunch is showing its strength in the personal loan market,” she added. At the same time, lenders who have stayed in the market have been putting up rates and tightening their lending criteria since last summer.
Figures obtained by Moneyfacts show that the average interest rate on a £5,000 loan over 3 years taken out in August of last year was 9.11%. By November of last year, the average figure for the same loan was 9.76%. That represents an increase of 0.65 percentage points in just three months, despite the Bank of England keeping interest rates on hold during the period. The entire lending market has been affected by the credit crunch with credit card interest rates and fees having also increased in recent months.
Recent research conducted by the price comparison website Uswitch suggests that many customers are now struggling to manage their existing debts, while others are finding it increasingly difficult to borrow money. Uswitch found that 38% of people who applied for a new credit card between August and November were turned down, while 19% of applications for a new personal loan were rejected. In addition to this, it said that 6% of customers had seen their credit card limits cut. With growing numbers of IVA's (Individual Voluntary Arrangement's) and defaults on loan repayments, it is not surprising to see lenders becoming more cautious about their lending.
It all points to difficult times ahead for customers. Ann Robinson, director of consumer policy at Uswitch had a stark warning. “More than half our take home pay is now eaten up by debt repayments, but our ability to repay and manage this debt is clearly faltering.” The fallout of the global credit crunch has lead to banks being forced to write-off huge sums of money and, as a result, they are now tightening their lending belts. Unless the market starts to recover soon – and there is little sign currently that it will – it is likely that credit will become harder for consumers to get and, with interest rates rising, borrowing will inevitably be more expensive.
With the advancement of online media and increase in the number of private lenders, there is a considerable increase in the competition in the UK loan market. This has led to flexibility in the criteria of granting loans. A few years back, borrowers were dependent solely on the mercy of high street banks for procuring loans. The products like unsecured loans and personal loans were rarely heard of, and something like bad credit loans was simply unimaginable. However, now all these loan products have a great market in the UK.
Most lenders offer varied loan products to the customers, suited to their needs and in accordance to their credit profile. Lenders offer personal loans for:
the self-employed, tenants and students
those who have no proof for income
those who have defaults, CCJs and Bankruptcy against their names
those who are not in a position to provide sufficient collateral
borrowers with adverse credit history
This signifies that anyone who is a UK citizen and above 18 years of age can apply for loans. Personal loans are any purpose loans. No matter how absurd or unusual your reason for availing loan is, you can get a personal loan from private and online lenders. These lenders specialise in granting loans under varied, difficult circumstances. For instance, most high street banks would reject your loan application, if you can't produce your proof of income. But, many online lenders ignore this parameter. But, rates charged by the online lenders are far greater than those charged by the high street banks. This is because of the fact that most loans approved by the high street banks are secured. Secured loans attract low APRs and other benefits like flexible repayments.
But, if you don't have any security to offer or can't fulfill the stringent requirements of the high street banks, apply for unsecured loans. Though you may have to pay a comparatively higher amount than secured loans, you'll get quick money required for short-term needs. It has been observed that most homeowners nowadays prefer unsecured personal loans over secured loans. There are two reasons to it. First, the risk involved for the borrower in pledging his home as collateral; and second, most of them already have other debts running against their home that they have no equity left. So, there are many parameters like this that borrowers have to closely analyse before they apply for personal loans.