2 million rejected for loans as banks curb lending

Friday, October 5, 2007

Nearly 2 million people have been turned down for a personal loan in the last 6 months as lenders have tightened their lending in the wake of the credit crunch. The move is the latest in a series of measures by lenders hurt by the continuing crisis.

Many banks and building societies have already increased their rates on tracker mortgages in a move to pass on the increased borrowing costs to customers.

This week 9 lenders have increased the cost of a personal loan by as much as 4 basis points.

1.91 million adults were turned down for an unsecured loan between April and September 2007 up from 1.39 million who were rejected in the previous 6 months. Lenders have been hit with bad debts with borrowers unable to repay their loans and are tightening their criteria. A combination of the credit crunch and the Bank of England raising interest rates has hit borrowers' ability to repay and lenders are reacting.

Banks fund many personal loans in the wholesale money markets, where the cost of borrowing has soared as a result of the credit crisis.

There is an estimated 12 million adults with £66 billion worth of personal loans outstanding in the UK. This is twice the amount of debt taken out on credit cards and 6 times the amount people have on overdrafts.