Unsecured Loan Costs Increase

There was a time when it was extremely easy for a potential borrower to obtain an unsecured loan for any amount up to £25,000 and even be able to get a cheap loan from a choice of providers all competing for the same business.

It is interesting to see just how quickly things can change over a relatively short period of time. Due to the effects of the credit crunch and banking crisis, the availability of unsecured loans has all but dried up and the interest rates charged on a new unsecured loan has increased dramatically, despite the large drop in the Bank of England base rate.

Although the Bank of England base rate of interest has fallen from 5.5 per cent to just 0.5 per cent over the course of the past three years, recent research from the independent firm Defaqto, has found that the average cost of an unsecured loan has increased from around 8.8 per cent three years ago, to 12.9 per cent today.

At the same time as this price increase, the number of providers who offer unsecured loans has also fallen dramatically over the past three years, as lenders do not wish to take on the risk of loans without any form of security.

In fact the majority of unsecured loan companies are now extremely reluctant to lend to anyone other than existing borrowers with a good track record.

The increase in cost of an unsecured loan has put many borrowers off the idea of taking out a debt consolidation loan, as in many cases the new loan will now charge a higher rate of interest than their existing loans.

Kevin Bray of Defaqto commented on the figures, he said “The increasing cost of unsecured lending reflects the lack of appetite for risk in this area with many providers suffering from high arrears and default rates.

SOURCE: http://www.bestloans.co.uk/