Since April getting accepted for a personal loan has become significantly harder as lenders restricted lending to protect themselves from the risk of rising unemployment and a worsening economy due to the Coronavirus pandemic. Amigo Loans publicly removed themselves from the market only accepting applications from key workers in emergency situations while other lenders have either temporarily paused applications or restricted lending.
This lack of supply along with a drop in consumer confidence led to a 59% reduction in loans during lockdown (April to June 2020) compared to the first three months of 2020. Lenders not only restricted lending to protect themselves from the risk of potentially greater defaults in the future but they also faced operational difficulties arising from the Government’s job retention scheme. Lenders could not easily tell if a loan applicant was receiving pay from the furlough scheme or not. With millions of people furloughed and the Office for Budget responsibility forecasting three million unemployed by the end of the year many lenders decided the risk was just too great.
This uncertainty and risk led many lenders to lift the drawbridge up on unsecured lending, with the expectation that they may not return properly until or after the furlough scheme finishes at the end of October.
The interest rates on personal loans tell a different story, these have remained largely stable throughout the entirety of 2020. The average interest rate charged on unsecured loans is now the same as before the Coronavirus pandemic started. In January 2020 the average rate for a £5,000 36-month loan was 7.6% APR this increased to a high of 8.2% APR in May 2020 before reducing back to 7.6% APR in August and remaining there this month. The very lowest interest rate for the same loan has remained static for the entirety of 2020 so far at 3.4% APR. This top rate was offered by Admiral at the start of the year up to early March and then by Tesco Bank until today.
The number of loans available also remained relatively steady compared to the reductions seen in other types of lending such as mortgages, with 48 loans available in March down to 44 in September.
During lockdown lenders decided not to use rates or restrict products to limit demand but instead have relied on their lending scorecards to remove those potential borrowers they believe are too risky to lend to. The upside is that those with the very best credit scores can continue to benefit from loan rates and product availability seen before the Coronavirus pandemic started. However, this is of no use for the many people that have been furloughed or have lower credit scores and they will likely find it difficult during the remainder of 2020 to find a lender to accept them. Those wanting to borrow should make sure they know their credit score before applying and consider using a loans eligibility service to get an idea of which lenders and at what rates they could be accepted.
Lenders are starting to approve more secured loans, with month-on-month increases in the number of new agreements in June and July 2020. The Finance and Leasing Association (FLA) has reported new cases have reached 966 , equivalent to £40m of loans in July, up from the low seen in May of £21m of loans approved. A secured loan requires the borrower to use an asset, usually a property they own either with or without a mortgage as security for the amount they want to borrow. This gives the lender more confidence to issue the loan as they have a clear way to get their money back should the borrower not be able to repay them.
Those wanting to be accepted for a secured loan will need to show the lender that they can afford the required repayments in addition to any existing mortgage payments or other debts they are repaying. They will also need enough equity in their own home, usually at least 25%. The borrower’s credit score is important for a secured loan, but unlike a personal loan it is not the most significant factor due to the lender having the additional security. It is therefore possible for the same borrower to be accepted for a secured loan and refused a personal loan. Borrowers should always remember that their property is at risk if they cannot keep up the repayments on their secured loan.
Secured loans start from £3,000 although the interest rates at this loan level are significantly higher than those borrowing larger sums such as £10,000 and £20,000.
Paragon Personal Finance currently offers the best rate of 3.80% (5.8% APRC) for a five-year fixed rate secured loan. The minimum borrowing amount is £20,000 and customers can only borrow up to 75% loan-to-value (LTV) of their property for both the secured loan and any outstanding mortgage balance.
Those wanting to borrow slightly less can get a minimum £10,000 secured loan from Masthaven Bank at 4.19% (6.2% APRC) for a fixed three-year term. Customers can only borrow up to 70% loan-to-value (LTV) of their property for both the secured loan and any outstanding mortgage balance.
United Trust Bank offers a minimum loan amount of £5,000 at 4.90% (7.2% APRC) over a three-year fixed term. Customers can only borrow up to 50% loan-to-value (LTV) of their property for both the secured loan and any outstanding mortgage balance.
You can see all the best secured loans rates on our charts.
Alternatively you can also speak with a loans broker to help find a deal that is right for you.
Our preferred secured loans broker, Loans Warehouse can help you with your application for a secured loan.
Call them on 01923 864126 or find out more.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Based on a £5,000 loan over 36-months the best personal loan available right now is from Tesco Bank at 3.40% APR. This loan will cost £146.17 per month and borrowers must apply online.
Those wanting a loan that have a bad credit score will find they need either a personal guarantor or be a homeowner to get the best interest rates. A £2,000 loan over 24 months has the best rate from Oplo Homeowners Unsecured Loan at 30.80% APR. The monthly repayment would be £108.92. Borrowers need to own a home either outright or with a mortgage and must be over the age of 21.
Those with a bad credit score that want to borrow less than £1,000 should consider contacting a credit union as these usually have more availability and lower interest rates than available from other types of lenders.
Borrowers wanting to buy a car could consider a specialist car finance or leasing company as an alternative to a personal loan.
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