Personal loan market 'shrinking' - More lenders have stopped offering unsecured personal loans

Thu, Nov 29 2007

More lenders have stopped offering unsecured personal loans, a move that financial information firm Moneyfacts has called a "worrying" trend.

Eskimo Loans, which is funded by ailing mortgage lender Northern Rock, has decided to withdraw its products with immediate effect.

Moneyfacts says the number of unsecured loan providers fell by 10% in November.

It blames the fall on problems related to the global credit crunch, loan defaults and higher interest rates.

'Unsettled market'

Before the latest withdrawals, GE Money, Leeds Building Society and LV= had already stopped offering unsecured personal loans in the past few weeks.

Moneyfacts said that a number of secured loan providers have also withdrawn their product ranges.

"Such a large reduction in just the last month is worrying," said Esther James, personal finance analyst at Moneyfacts.

"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 the summer.

According to Moneyfacts, the average interest rate on a £5,000 loan over 3 years taken out in August was 9.11%.

The average figure for the same loan today is 9.76%. That represents a increase of 0.65 percentage points, despite the Bank of England keeping interest rates on hold during the period.

Credit card interest rates and fees have also been increasing.

'Crunch time'

Recent research by the price comparison website Uswitch suggests many customers are struggling to manage their existing debts.

Others are finding it increasingly difficult to borrow money.

Uswitch found 38% of people who had applied for a new credit card in the past three months were turned down, while 19% had applications for a new personal loan rejected.

"The banks are being forced to write-off vast sums and, as a result, they are tightening their lending belts.

"This means that credit will become both harder for consumers to get and more expensive," she added.

Source: news.bbc.co.uk