High street personal loans 'drying up'

16/07/2009

The number of lenders offering personal loans to consumers has fallen by 37 per cent since the onset of the credit crunch two years ago.

A landmark new report from financial website Moneyfacts.co.uk also shows that rates have been hiked by lenders who remain in the market.

Marquee names including Intelligent Finance, MBNA Europe and Virgin Money have also withdrawn their personal loans offers entirely.

Revenue concerns at banks and rising customer defaults caused by the global financial crisis are major factors behind this trend.

Commenting on the report, EuroDebt director Kevin Still said: "Traditionally unsecured consolidation loans were used as a popular way of settling credit card balances and more expensive forms of credit, like store cards. Many lenders have now withdrawn these facilities and those that are have tightened their lending criteria and interest rates remain high despite the base rate being below one percent. Historically, the evidence has shown that nearly two-thirds of people using unsecured loans to consolidate existing debts have ended up in more debt because they fail to settle the old credit agreements when the funds are advanced by the loan provider.

"The growth of Debt Management Plans has in part resulted from the need for 'non-borrowing' debt solutions where people would have historically borrowed to try and reduce the burden of their credit commitments."

Mr Still also pointed out that lenders' credit criteria were also becoming increasingly sophisticated.

"Since December 2008 many credit card companies have started to share more information with the credit reference agencies with regard to the frequency of cash withdrawals on credit cards and whether you only pay the minimum contractual payments," he added.

"This is intended to give lenders greater insight into a consumer's ability to manage additional credit and should be used to promote responsible lending. In practice this has meant that many consumers have been contacted with regard to reducing their balances.

"The practices of balance swapping and using cash withdrawals to pay the minimum payments on other cards has also come under scrutiny. These are all sensible practices provided that lenders properly communicate with their clients who are visibly struggling and look at practical solutions to reduce their risk exposure whilst avoiding the situation where the client is treated unfairly."

Tags; Debt Management and Banking, Credit Card Lifestyle,

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