Lenders Shy Away From Unsecured Loans Market

Mon, 20 Jul 2009

The number of UK lenders offering unsecured personal loans has fallen by more than a third over the last two years, according to latest figures from Moneyfacts.co.uk.

Research from the financial website revealed there has been a 37 per cent drop in the number of providers offering unsecured loans - those that are not guaranteed against a valuable asset such as a home - since July 2007.

According to Moneyfacts, financial institutions are moving away from unsecured borrowing and switching their focus to the most risk adverse form of lending due to the growing risk of borrowers defaulting.

Direct Line, Intelligent Finance, Liverpool Victoria, Lombard Direct, MINT, Northern Rock, The AA and Virgin Money are among those that have pulled out of the market in the past two years.

Barclays has also dropped the Barclaycard brand for personal loans, with all unsecured lending now available through its Barclays Bank brand.

Furthermore, lenders which have remained in the market have increased the cost of unsecured borrowing, with the average rate on a £5,000 loan rising by 3.7 per cent to 12.4 per cent since mid-2007.

Louis Kaszczak, head of Moneyfacts.co.uk, explained: "Many lenders are pulling away from unsecured lending as the risk of customers defaulting continues to increase."

"Latest figures show that unemployment has risen once again. Borrowers struggling with repayments will inevitably forgo repayments on unsecured lending first, while trying to maintain their secured lending commitments such as their mortgage ."

"Those lenders that do remain are charging a much higher rate of interest in order to offset the potential risk."

She added: "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 ."
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