Personal Loan Availability 'Diminishes' (veezq-38054)

Consumers are finding it increasingly difficult to take out a personal loan, it has been suggested.

Consumers are finding it increasingly difficult to take out a personal loan, it has been suggested.

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Figures released by moneysupermarket indicate that almost half of all those applying for a loan at present are being turned down by loan lenders. However, six months ago this proportion stood at a third, reports the Daily Telegraph. In April, 33 per cent of all loan applicants were rejected for an unsecured loan, by last month this level surged to 48 per cent. Meanwhile, some providers have tripled the rate of interest attached to their borrowing products for those consumers deemed to be a high risk, which could well include those who have taken out bad credit loans.

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Statistics from the Bank of England indicate that some 12 million borrowers owe 162 billion pounds via personal loans. This type of borrowing equals to some 7,000 pounds per average British household is in debt by. In addition, this figure is six times and twice as much the amount consumers have accrued on credit cards and overdrafts respectively.

The news comes as three providers - Leeds Building Society, GE Money and LV=, which was formally known as Liverpool Victoria, have withdrawn from the unsecured loan sector. Tim Moss, head of loans and debt for moneysupermarket, said: "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 have pulled out."

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Mr Moss added that many providers are becoming increasingly strict about who they issue personal loans and other types of credit to as they are evermore concerned that borrowers will default on their debts. "It all comes down to the credit crunch. With mortgages and other bills going up what's the first thing you default on? It's the unsecured loan," he said. Consequently, the publication advised that millions of families may no longer be able to successfully apply for a personal loan or be able to afford to make repayments.

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According to the Daily Telegraph, an increasing number of families are using personal loans and other types of borrowing as a means of financing their money management. An estimated two-thirds of loans are being used as a means of debt consolidation to help pay off other debts. However, with the interest rates attached to credit products increasing and loan lenders implementing stricter criteria, the publication suggested that heightened rejections for loans could result in "a major financial headache for many stretched families".

Such sentiments were expressed when Moneyfacts spokesperson Michelle Slade told the Independent that finding a cheap personal loan is becoming more difficult due to rising levels of bad debt and "economic instability". However, she claimed that borrowers could be under more financial pressure as the effect of base rate rises by the Bank of England are yet to take true effect. Consequently, those looking to take out a loan to help them guide through economic uncertainty could be advised to apply for a personal loan as soon as possible.