Because the Bank of England base rate was not raised 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 more expensive over previous years than they have been for quite some time. There are a number of reasons for this, and this article will hopefully give you an insight into what they are.

Too few lenders

Due to the credit crunch and the problems caused by lump sum Payment Protection Insurance (PPI), there are now significantly less financiers available. The mis-selling of PPI has resulted in a significant issue for the UK loans industry, as a great many lenders were let’s say too pushy in their zest for selling this insurance policy. They failed to explain the product they were pushing and in a great many cases led the applicant to believe that the cover was compulsary. Also for the secured home loan industry a majority of lenders sold their PPI insurance as a one off payment that offered cover for the first 60 months of their loan. However this premium was usually added to the loan amount and as a result of this the applicant was paying interest on the premium for the term of the loan (up to 25 years). The government changed the law regarding the sale of payment protection insurancePPI which left the loan companies exposed to court action, not only on new sales of this product but also on previous sales. This opened the flood gates and in a majority of cases the loan companies were being forced to recompense the cost and any interest that had been charged on the premium. Because of this numerous lenders were forced into liquidation.

Lack of confidence in the economy

Because of the state of the country the small number loan companies that are still available are concerned that they will be unable to their money back. This fear has caused them to change tack and re-think their lending criteria and also their rate cards in order to reduce their exposure. This double edged approach has reduced the numbers of people they will lend to, and the ones that they do lend to are being forced to pay higher rates.

Will cheap loans come back?

There are early signs that we may have turned the corner, with a few new lenders preparing to enter into the market, and the new cheap rate already available from “Link Loans”. As more lenders get involved in competing for your business that is likely to do a couple of things, according to where the new loan companies want to position themselves. Firstly it could possibly (start a rate war where the main benefactors will be the applicants as they see lower interest rates. Another likelihood is that the providers will become more forgiving with their criteria, in order to get hold of their quota of new business. This will help to make it easier for those of us that have experienced financial problems in the past to secure the loan with bad credit we need to help get back onto an even keel.