Why are loans harder to find at the moment?
One of the consequences of the difficulties in the credit markets has been a reluctance of loan providers to offer a wide range of products any longer. They have the dilemma of trying to reduce their risk whilst at the same time maintaining enough profit to stay in business. In the past they had the choice of using a range of loans to balance their portfolios. Some loans were higher risk but generated bigger profits, whilst others were very low risk but barely made any profit for the lender. It was typically the riskier loans offered to people with bad credit records that brought in the money and if these were sold with payment protection insurance too they generated plenty of cash to allow lenders to offer low interest rate loans to others. But things have changed on various fronts in the past year and this spread of loan products has slimmed down quite dramatically.
The choice of bad credit loans that are available has reduced significantly as many lenders struggle to raise the finance necessary to provide all the loans they are being asked for. Also the organisations that are prepared to put money into lending at the moment are very sensitive to the risks involved. Many will only approve funding if risk profiles are maintained at low levels and subsequently high risk loans rarely feature currently.
The other angle affecting choices at the moment is loan insurance. Historically it generated much of the profit seen by lenders and hence the cost of loans was not a realistic level because the insurance subsidised matters. Now that insurance sales have been brought into check by new regulations, profits need to be made elsewhere. And with very few of the most risky bad credit loans being offered at the moment, there is less scope to subsidise cheaper loans in a lender's portfolio. So to summarise, the cheapest loans of last year have become more expensive due to a couple of factors. Wholesale finance is more expensive so lenders need to pay more for the money they lend and loans cannot be subsidised by higher risk loans like they have in the past. Also do to increased sensitivity to risk, certain bad credit products have been removed so anyone with an adverse credit record is going to have to search longer and harder in order to find a loan offer.
