Lenders Reluctant About Unsecured Loans
Since the start of the credit crunch, almost two years ago now, banks and building societies have become extremely reluctant to offer loans of any kind to a potential borrower, even if the individual in question has a perfect credit history and they have applied for a secured loan against their property.
But when it comes to an unsecured loan, which offers very little protection for the lender, many loan companies are withdrawing from the unsecured loan market altogether, or increasing their loan interest rates dramatically. In fact the number of available unsecured loan products available on the market has dropped by more than one third over the course of the past two years.
The news follows a recent survey of the unsecured loan market by Moneyfacts.co.uk, who have revealed that there are now 37 per cent fewer lenders in the marketplace who are prepared to offer unsecured loans and several large names in the loan industry have withdrawn from the market over the past two years. As the risk associated with lending has increased recently, most of these lenders have switched their focus from unsecured loans to secured loans, which offer them more protection in the event of the borrower defaulting.
Those lenders who still offer unsecured loans have increased their rates significantly, with the average rate on an unsecured loan of £5,000 rising by around 3.7 per cent, to an average of 12.4 per cent. A spokesman for Moneyfacts.co.uk commented on the changes, he said “Many lenders are pulling away from unsecured lending as the risk of customers defaulting continues to increase. While shopping around is key, borrowers need to be wary of making too many applications as this will leave a mark on their credit file and may have a detrimental effect on their chances of being accepted for a loan.”
