Less lenders are offering less unsecured loans and credit cards, meaning more borrowers will have to opt for secured borrowing to get through the downturn.

Latest figures from Moneyfacts.co.uk show a 37% drop over the last two years in the number of lenders offering unsecured personal loans. And of those lenders that remain in the market have increased the cost to borrowers, with the average rate on a £5,000 loan increasing by 3.7%.

Louis Kaszczak, head of Moneyfacts.co.uk, says: “Many lenders are pulling away from unsecured lending as the risk of customers defaulting continues to increase.Borrowers struggling with repayments will inevitably forgo repayments on unsecured lending first, while trying to maintain their secured lending commitments such as their mortgage.

“Those lenders that do remain are charging a much higher rate of interest in order to offset the potential risk – borrowers requiring a £25,000 loan over five years will now have to pay an additional £1,334 in interest, compared with two years ago."

The website also warns that only two thirds of customers will get the advertised typical rate and as a result, borrowers need to be wary of making too many applications as this will leave a mark on their credit file and may have a detrimental effect on their changes of being accepted for a loan.

Unsecured lending is simply not a viable option right now. It's too expensive, it's not competitive and it will not help any borrower. By seeking out some secured finance a borrower can be sure of a lower rate, a better chance of future financial success and a cleaner credit history.

SOURCE: Moneyfacts.co.uk, 15/07/09

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