Nearly half of all people applying for personal loans have been turned away by their banks as the rein in on lending has continued. The number of customers who have been declined loans has rose a by a third compared with the previous six months.
It is estimated that outstanding personal loans stand at ?162 billion amongst the l2 million borrowers in the UK, according to Bank of England figures. This equates to ?7,000 for every household in the country and is more than double the debt figures for credit cards and six times the amount people have on overdrafts.
Price comparison website, Moneysupermarket.com calculated that last year during a six month period the percentage of people being rejected for unsecured loans rose by 15 per cent. Borrowers being declined for these packages, where they do not have to offer any collateral such as their home to guarantee the loans went from 33 per cent of all applicants to 48 per cent as banks became increasingly cautious about lending money.
The information released by Moneysupermarket.com came on the same day that three of the countries foremost lending companies removed themselves from the unsecured loan market. These were GE Money, Leeds Building Society and Liverpool Victoria.
Moneysupermarket.com spokesman, Tim Moss commented, ?GE is one of the world?s biggest financial institutions. If anyone can make money out of personal loans they can. It is significant that these three pulled out.?
The ?credit crunch? is being blamed for this by leading analysts who insist that banks are becoming increasingly worried about their customers failure to pay their debts, so are becoming firmer with whom they lend money too. Moss added, ?With mortgages and other bills going up, what?s the first thing people default on? It?s their unsecured loan.?
Families are being warned that with rates set to increase and the criteria for lending money becoming stricter, many could find themselves being stretched financially especially families who have taken out multiple loans to pay off other debts.
With more and more banks removing the offer of fixed price loans to offer personal priced loans, it allows them to use a more scrupulous method of measuring a customers? risk, making it easier to offer these unsafe consumers higher rates.
This rise in rates could leave millions of families unable to afford or be granted personal loans prompting Ruth Leaver, advisor to the Arbuthnot banking group to say, ?I suspect we are feeling the start of a very bad fall out.?
People who are struggling with personal loans and credit card debt are being swayed into taking out consolidation loans, but these could result in the loss of the borrowers home warn Citizens Advice and the Consumer Credit Counselling Service (CCCS). They say that lenders have increased the tactic of offering customers the chance to extend their mortgages or take out second loans secured against their property. This has been criticised by some leading analysts saying that companies are giving this chance to borrowers even when they know they cannot afford the repayments.
Social policy officer Peter Tutton, who specialises in credit and debt for Citizens Adivce said, ?There are problems with secured consolidation loans. We?re seeing lots of evidence that where people to get into financial trouble, they are being pushed into consolidation.