The Evolution Of The Personal Loan Market In The Uk

By Author: John O’Farrell
Total Articles: 23
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For some time now if you wanted a loan in the UK market then it mainly came down to a choice of whether you wanted to secure your home against it or not.

A Secured loan, a second charge on your property that sit behind an pre-existing mortgage, was available to borrowers such that they could borrow up to 85% of the value of their home. The rates were usually competitive and the terms flexible up to 20 years but these loans did come with hefty fees that tended to push up the overall APR. Still, in an age where many people are on very benevolent Tracker mortgages from the heady days of the credit bubble, it suited them to increase their leverage without losing the beneficial rate by taking such a loan.

The other option up to now has been to take an unsecured loan from your bank. Needless to say, the criteria for getting such a loan have tightened dramatically in the last 3 years. Indeed, many banks seem to prefer to find reasons not to give the loan than to give it – a far cry from the middle of the last decade when they were actively seeking out customers to lend to at ever more competitive rates! Even if you ...
... are one of the chosen few deemed eligible for an unsecured loan from your bank, you can expect to pay a minimum of 7% and more likely something in to double-digits. If you are refused by your bank – and this can happen for reasons as silly as the fact you are not on the Voting register, even if your credit history is otherwise perfect – then your only other option is a range of privately funded lenders. These rates start at about 21% and go up quickly to 60-70% for those with a speckled credit history and can even get above 100% if your record isn’t that good! The result of this market is that far less people were being able to take loans than need them.

Of course the irony of this situation is that it is happening at a time when Bank of England Base rates are at an historic low of 0.5% and savers are getting no more than 2.5% on their savings. Something had to give.

Enter then peer-to-peer lending sites. The concept is simple: savers deposit their money with the peer-to-peer lender who then split it into parcels of £50 each distributes it to a host of borrowers, all grouped by credit quality. The saver can select what level of credit quality they wish to lend with, are given an estimated return (ranging between 8-14%) but then have to expect defaults, albeit that their money is split among many borrowers. For the borrower they have access to flexible funds at rates that compare well with a secured loan but without the associated fees.

Is this the future of banking in Britain? What is without doubt is that it will have an increasing part to play and will provide competition for banks.

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Choice-loans.co.uk offers homeowners secured loans. People in the UK can search to find the cheapest secured homeowners loans.