The current financial crisis has resulted in many people taking out unsecured loans to consolidate and pay off their existing debts. However, most of the big banks and many other financial institutions are cutting back on both unsecured and secured loans, making it difficult for people to pay off their debts. Most people go for debt consolidation because it means that they can pay their debt off with an unsecured loan and only make one monthly payment. The Halifax offers a low rater personal unsecured loan to customers and they report that the vast majority of such loans are used to consolidate existing debt.

Over the last two years the average rates for people borrowing £1,000 is 13%, while loans of £10,000 have jumped 24% and £25,000 by 26%. Even though the Bank of England base rate has fallen to 0.5% Moneyfacts have reported that interest rates on personal loans have risen by 44% in the last two years. Those people who want to borrow £5,000 have been worst affected by this with a rise from 8.6% in May 2007 to 12.4% in May 2009 – which is a rate increase of 3.8% and a percentage increase of 44%. Tighter lending procedures will probably mean that those with the highest credit ratings will get the best interest rates. Although house prices are on the up, this has not, by and large, prompted a change in the current lending practices of most the big banks and financial services companies.
 

Although the majority of banks and financial service companies have upped their rates and are reigning in their loans, Nationwide appears to be going against that trend with lending up by an average of 44% over previous years. The building society has introduced a special rate of 7.9% on loans ranging from £7,500 to £14,900, a third the rate from other lenders. In addition to bucking the trend on lending, Nationwide has also offered more flexibility to older people who want to save money, however, if the new Equality Bill becomes law, it will make discriminating in favour of anyone based on age, illegal.

The fact of the matter is that the vast majority of lending institutions are cutting back and those loans that they do agree are charged out at a much higher rate and with higher interest as evidenced above. Those people who are lucky enough to get a personal loan with Nationwide are getting a much better deal than those people who look for money elsewhere. Unless the banks do as government advises and goes back to lending more, then the economy will not recover as it relies on credit to help it grow.