With the bank of England base rate being held at 0.5% again for the 23rd consecutive month, more and more people are wondering why the rates for all types of loans and finance have in fact been higher over the last two years than they have been for a long time. There are a number of reasons for this, and this article will hopefully give you an insight into what they are.

Lack of competition

As a result of the credit crunch and the disaster that was lump sum Payment Protection Insurance (PPI), there are now fewer lenders in the market place. PPI miss-selling has caused a massive problem for the UK finance industry, as a majority of lenders were let’s say over enthusiastic in their approach to selling this insurance cover. They did not explain the product they were selling and in most cases led the applicant to believe that the cover was mandatory. Also for the secured loans industry most lenders sold their PPI insurance as a lump sum payment that covered the applicant for the first 5 years of their loan. However this premium was added to the loan amount and therefore the applicant was paying interest on the premium for the term of the loan (up to 25 years). The government made changes to the law concerning the sale of PPI which left the lenders open to court action, not only on new sales of this product but also on historical sales. This opened the flood gates and in most cases the lenders were being forced to repay the premium and any interest that had been charged on the premium. As a result of this a great many lenders were forced out of business.

Unstable economy

Because of the state of the economy the few lenders that survived are concerned that they will not get their money back. This fear has prompted them to change tack and re-evaluate their lending policy and also their rate cards in order to minimise risk. This two pronged attack has meant that they will not lend to as many people, and the ones that they do lend to are being asked to pay higher rates.

Will better rates ever return?

It is finally looking like the tide has turned, with several new lenders looking at coming into the market, and the new 7.9% headline rate already introduced by “Link Loans”. As more lenders get involved in bidding for your business that will probably do a couple of things, depending on where the new lenders want to position themselves. Firstly it could possibly start a rate war where the main benefactors will be the applicants as they see the rates reduced. What may also happen is that the lenders may have to become more flexible with their criteria, in order to sign up their quota of loans. This will help to make it easier for those of us that may have been experiencing financial problems recently to secure the finance we need to help get back onto an even keel.

Author Bio: Tom Dawson is A UK finance expert who can help arrange cheap home improvement loans and secured loans for any purpose. Visit the site today

Category: Finances
Keywords: cheap loans, secured loans, loans, lenders, cheap rates