Difficult year ahead for Britons with personal loans

by Gill Montia

Story link: Difficult year ahead for Britons with personal loans

Moneysupermarket.com is forecasting a difficult year ahead for borrowers with unsecured loans.

The price comparison website’s head of loans, Tim Moss, expects banks to continue to keep a tight grip on lending, which when combined with a rise in unemployment will leave more people struggling to repay outstanding debts.

According to Mr Moss, consumers who already have personal loans will face an ever-increasing squeeze on their disposable income in 2009, resulting in some being unable to meet their repayments.

Lenders will therefore be raising APRs to cover a rise in defaults and lower income from payment protection insurance (PPI).

Lenders have been making huge profits from PPI but repeated incidents off mis-selling have caused the Financial Services Authority and Competition Commission to close in, with the former issuing heavy fines and the latter proposing a ban on the sale of PPI within 14 days of the sale of an associated loan.

Mr Moss is therefore predicting that rates on unsecured loans will return to around 12%, a level not seen for over five years.

In addition, he sees banks “cherry-picking” their customers so that some borrowers who are currently relying on being able to reconsolidate their loans in 2009 may find themselves with nowhere to turn.