Thursday, January 15, 2009
Category:
Consolidation
According to research conducted by MoneyExpert.com, the number of personal loans on offer has practically halved since the beginning of 2008.
In January 105 products were available to those wanting to borrow £5,000 but this figure has declined at a rate of 46 percent, and now stands at just 57.
In addition, those looking to obtain a loan can expect increased APRs. In January, the average APR for a loan of £5,000 was 10.65 percent; by December this figure trebled and is currently at 29.40 percent.
This substantial increase has been primarily attributed to the deterioration of ‘best-buy’ offers and the recent rise in sub-prime loans. When 2008 commenced, 74 percent of available loans were charged at an APR of 10 percent or less, whereas today there are just 31 percent of loans such as this.
One area of the market would appear to be flourishing however – high interest loans targeted at high risk borrowers. In January, the highest APR on the market for a £5,000 loan was 13.1 percent but this figure has since significantly increased due to the emergence of new, more expensive, products throughout the course of the year. The aforementioned ‘high risk borrowers’ with weak credit ratings, now face a choice of six loans with APRs at 14 to 24 per cent, and five loans at 50 to 70 percent.
The escalating cost of unsecured lending has come at a time when the Bank of England base rate sits at an all time low. Generally the latter represents an indicator for how much consumers can expect to be charged for a loan, however this is not currently the case. January’s base rate of 5.5 percent has since gone down to just 2 percent.
Sean Gardner, Chief Executive of MoneyExpert.com, commented: "December is normally a time to give, not it seems if you're a loan provider however. With unemployment on the up, lenders are increasingly thinking twice before offering money they're much less sure they'll get back. The cost of this risk is being passed on to us all with higher APRs and fewer products available."
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Homeowners who already have several existing personal loans, store cards and credit cards may wish to consider
consolidating these with a secured loan. A secured loan, repayable over a term to suit the borrower from 5 to 25 years, could be used to repay existing debts. Borrowers may find that initial monthly repayments are lowered; however, when repaying the borrowing over a longer term, it should be remembered that this may increase overall interest charges.
