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Cost of borrowing jumps

Before the credit crunch, lenders were falling over themselves to offer loans to would be borrowers, with an average loan rate of just 7.8% in 2006. However the banks and indeed the taxpayer are now counting the cost of what is regarded as a period of over enthusiastic lending.

The collapse of Northern Rock in September 2007 signalled a sea change in attitudes and the carnage that ensued with accusations of reckless lending has led financial institutions toconsiderably tighten their criteria on who they would, and who they would not, lend to.

Despite the Bank of England base rate being at a 300-year low of 0.5%, the interest rates on personal loans have been creeping up steadily. It is believed banks are wanting to discourage unsecured borrowing and high loan rates are an effective method of deterring would be applicants. The lack of appetite among lenders to lend to new customers is demonstrated by the fact that many of the best loan rates advertised today are reserved for existing current account customers. The banks feel they can "closely examine" their customers financial behaviour and set an interest rate based on their individual risk and credit record.

Even people with impeccable credit files will find their options more limited when compared to a few years ago. Nevertheless, deals are still available.

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