As you probably know from your own experience getting a loan or credit product in a booming economy is relatively easy.
Although lenders are supposed to check issues such as your income, ability to repay what you borrow and your credit history, virtually any UK consumer could have taken out a loan or a new credit card over the last couple of years without any problems.
The average consumer, over this period, has actually probably been inundated with offers of credit in the post. At one point it seemed like loan deals and credit card offers were coming in every day. Most of these will have dried up now. One of the major effects of a recession is the fact that credit as a whole simply becomes more expensive and harder to get.
According to research conducted by the financial website moneysupermarket.com late in 2008 loan costs were already rising at that point. At this stage, even before the country went into recession, the company found that the interest rates offered for personal loans were at their highest since 2003. The Bank of England base rate may be falling but that has no impact here on the cost of credit.
The fact is that costs are likely to increase even more in the coming months so getting a loan or other source of credit could become even more expensive. Just a few years ago it was common to see rates of around 5 and 6% here, now you are more likely to be looking at 8% averages for unsecured finance.
But, lenders have also been told by the government to stop selling insurance products such as PPI schemes in tandem with the loans that they give out. The Competition Commission has ordered them to wait 14 days before selling this kind of related product and this will come into force shortly. This means a loss of income for lenders who often used these kinds of products to subsidise their lending. It is anticipated that they will have to claw this back by raising loans rates even more – averages of around 10% are being mentioned by many experts here.
And, in addition to the cost of credit rising it is also becoming harder to actually get approval in the first place at the moment. The credit industry is suffering from the fact that it became so lax in approving loans and other credit products and has consequently tightened up the whole approval process.
This can make it extremely hard to get a loan with decent rates at the moment which is causing consumers with debt problems a lot of concerns. In the past a simple consolidation loan could help you sort out your debts relatively quickly and simply but this is no longer the case. Now, if you can get this kind of credit in the first place it will simply be more expensive and could minimise the advantages of debt consolidation in the first place.