Personal Loan Market Shrinks As Lenders Increase Rates
18 September 2009 / by Andy Davies
The personal loans market has shrunk by 37 per cent in the past year, whilst some lenders have increased their rates, uSwitch.com has revealed.
Currently there are 36 personal loans available to borrowers, compared to 57 loans this time last year.
Meanwhile, since the start of September three unsecured personal loan providers have increased their rates by up to 1.2 per cent, which, according to the comparison website, could cost borrowers an extra £322 in interest on a typical loan of £10,000.
Marks and Spencer Money has increased selected loan rates by 1.2 per cent, as Egg and Alliance and Leicester have also announced rate increases, with the average personal loan rate now standing at 9.08 per cent, a 0.4 per cent increase on last year.
uSwitch.com also suggests that the trend of offering the best deals to new customers does not apply to the unsecured personal loans market, as existing customers appear to enjoy slightly lower rates.
For instance, existing unsecured personal loan customers for Tesco’s Personal Loan are eligible to receive an interest rate of 7.9 per cent compared to eight per cent for new customers.
Commenting on this trend, Louise Bond, personal finance expert at uSwitch.com, said: “As consumers struggle to make ends meet and manage their finances, loan providers are looking to offer the best rates to those whose financial behaviour they can closely inspect – which are their existing customers.
“Last year 1.3 million consumers used an unsecured personal loan for debt consolidation purposes. However, with the number of personal loans available dropping by 37 per cent this year and rejection running high, it would be highly unlikely that a similar number of consumers would be able to consolidate their debts this year.”
But, she added that borrowers looking to consolidate their debts should find out what rates are available from their existing financial services providers, “as it seems loyalty is one of the only aspects that could win consumers better interest rates at the moment”.
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