Lenders exit personal loans market en mass

by Gill Montia

Story link: Lenders exit personal loans market en mass

The credit crisis has devastated the personal loans sector, with 37% of lenders pulling out of the market over the past two years.

According to Moneyfacts.co.uk the AA, Intelligent Finance, Direct Line, Lombard Direct, MBNA Europe Bank, Northern Rock and Virgin Money are among those to have made an exit.

Research by the financial website also shows that lenders remaining have substantially hiked rates, with the average rate on a £5,000 unsecured loan up from 8.7% two years ago, to 12.4% today.

With rates even higher for larger amounts, the firm calculates that a £25,000 loan over five years costs an additional £1,334 in interest today, compared with July 2007.

In addition, Moneyfacts spokeswoman, Louis Kaszczak, warns: “While shopping around is key, borrowers need to be wary of making too may 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.”

In related news, the Citizens Advice Bureau (CAB) recently reported that lenders are increasingly threatening unsecured borrowers who have fallen into arrears with charging orders as a means of securing loans against equity in property.

In a report entitled “Out of order” the charity claims that creditors are also asking courts to enforce charging orders by granting an order for sale, which allows a lender to recover debt by forcing the sale of the borrower’s property.

According to the CAB, the law around charging orders is unclear and lenders that have been testing the water are obtaining the orders with “increasing ease”.

The report also makes the point that there is currently no minimum financial threshold for obtaining a charging order, leaving people at risk of losing their homes over potentially very small sums of money.