Personal loan market shrinks

The number of personal loans available fell by nearly 10% during November as a further two lenders pulled out of the market.

Crisis-hit bank Northern Rock has announced that it will no longer offer new loans through its Eskimo Loans brand, although it will continue to advance Northern Rock branded ones.

Hanley Economic Building Society has also decided to pull out of the market, according to financial information provider Moneyfacts.co.uk.

These groups join three other providers who exited the market earlier this month, reducing the number of loans available by nearly 10%.

The market for personal loans has been hit by the global credit crunch as lenders find it more difficult and more expensive to raise funds.

As a result they have been increasing their rates, with around 32 providers hiking them since July, putting them up by an average of just under 1%.

Financial website MoneyExpert said last week that the average interest rate charged on smaller loans has reached nearly double figures at 9.5%.

At the same time many groups are tightening their lending criteria and becoming more reluctant to advance funds that are not secured.

MoneyExpert recently said 1.91 million people have had loan applications turned down in the six months to the end of September, up from 1.39 million during the previous six-month period.

Esther James, personal finance analyst at Moneyfacts, said: "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."

Source::http://www.channel4.com/news/articles/business_
money/personal+loan+market+shrinks/1118547