Loans dry up as APRs treble

The number of personal loans available has almost halved since the start of the year, according to research by MoneyExpert.com. In January there were 105 products available to those looking to borrow £5,000 but today this figure has reduced to just 57, a decrease of forty six per cent.

Those people in search of a loan face substantial hikes in the APRs they can expect from loan providers. In January the average APR on a £5,000 loan was 10.65 per cent but across the market this figure has since trebled to a massive 29.40 per cent.

This huge rise is predominantly attributable to the weakening of best-buy offers available and the growth of sub-prime loans in recent months. At the start of the year 74 per cent of the loans offered charged an APR of 10 per cent or less but today this figure has reduced to 31 per cent.

The one aspect of the market which has seen a growth is the number of high-interest loans, aimed at higher risk borrowers. At the start of the year the highest APR on the market for a £5,000 loan was 13.1 per cent but over the past twelve months a significant number of loans charging well in excess of 13 per cent have emerged. Those borrowers with a weaker credit rating may now have to choose between six loans with rates of between 14 and 24 per cent and five loans charging between 50 and 70 per cent interest.

The spiralling cost of unsecured lending comes at a time when the Bank of England base rate, normally a strong indicator of how much consumers should expect to pay for a loan, is at a historic low. In January of this year the base rate stood at 5.5 per cent but by December of this year had dropped to 2 per cent.

Sean Gardner, Chief Executive of MoneyExpert.com, said: "December is normally a time to give, not it seems if you're a loan provider however. With unemployment on the up, lenders are increasingly thinking twice before offering money they're much less sure they'll get back. The cost of this risk is being passed on to us all with higher APRs and fewer products available."

In today's market the most competitive products for a £5,000 loan come from Zopa A-star Personal Loan, 6.96 per cent APR and Your Personal Loan, 7.8 per cent APR. The least competitive products are offered by Oakam Bonus Loan charging 69.09 per cent and 60.16 per cent.