Is Finding an Unsecured Personal Loan Going to Become a Problem?

By: Reno Charlton

A recent report has revealed that the global credit crunch, bad debt levels, and increased worry amongst UK lenders could be having an even deeper impact that originally thought. Many different areas of the finance sector have been hit by a combination of these factors, and consumers looking for anything from credit cards to mortgages have felt the pinch, as the range of products becomes smaller and lenders become less willing to take a risk. There has been an increase in the number of rejected applications for both credit cards and mortgages, and lenders have really increased stringency when it comes to offering these types of finance.

It now seems that the unsecured personal loans market could be the next one to suffer, with recent reports claiming that there has been a significant reduction in the level of unsecured personal loans now on the market. These loans have proven popular for many years with consumers that either do not own their own home, and therefore cannot consider a secured loan, and with those that do have their own home but do not wish to secure finance against any assets. An unsecured personal loan is a loan that is based on contract and trust, and therefore is a higher risk to lender than a secured loan.

In the past those with good credit have enjoyed a great choice of unsecured personal loans with lenders ranging from high street banks to online lenders. Usually unsecured lenders will only consider lending to those with good credit, as bad credit customers pose too high a risk given that there is not collateral involved. However, it now seems that even those with decent credit may find it increasingly difficult to find an affordable unsecured loan.

One lender that is funded by ailing bank, Northern Rock, stated that it was withdrawing its unsecured personal loans with immediate effect in a recent report. A number of other lenders have already withdrawn their unsecured personal loan products recently, and this includes Liverpool Victoria (LV), the Leeds Building Society, and GE Finance. One industry official stated: "Such a large reduction in just the last month is worrying. With no signs of rate rises slowing, it's a rather unsettled market. The credit crunch is showing its strength in the personal loan market."

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