Banks claim big rise in lending
The main high street banks claim they are lending more to individuals after their huge government bail-outs. But there’s still been a big rise in the numbers of people unable to obtain credit.
The banks’ personal loan rates are relatively low – for those with top-quality credit ratings. But thanks to the use of credit scoring, anyone with a poor credit rating is likely to pay up to three times the lowest 8 % rate available to the best prospects.
The real story here is that during 2005-07 a raft of new lenders entered the UK market and personal loan rates fell as competition reached fever pitch. The result was that banks like Lloyds TSB and RBS virtually withdrew from the personal loan market. They just weren’t prepared to lend at such low rates. As it turns out, they were right. Now these big banks are back in the market, with loans at higher rates but rates that, they say, fairly reflect the risks of borrowers defaulting in more difficult economic conditions. The narrow gap between rates for lower-risk and higher-risk borrowers that applied in 2006 has widened into a gulf.
So if you are a top-quality borrower – low debts, secure job, homeowner, long time at the same address - you should be able to source a loan at a reasonable rate. If not, resign yourself to paying significantly more than the rates advertised on the banks’ websites.
One fact to note is that a high proportion of personal loans are paid off early. So take care to check early repayment penalties before you sign up to a loan. If your circumstances improve, you’ll probably want to pay it off early - make sure you don’t have to pay through the nose if you do so.
