Secured loans market gets tougher

	Typical APR	Per Mth
	7.6%	£229.59
	7.7%	£230.91
	7.9%	£233.57
	8.9%	£247.01
* Based on £25000 over 15 years secured and is not a full search of the whole market

Secured loans may go up in price because of the so-called "credit crunch" that is affecting banks around the world. If you are looking for a secured loan, you may also find it harder to get one as lenders tighten their borrowing criteria and exclude more risky customers.

The squeeze originates in the US, where lenders have been making generous loans to customers with low incomes and poor credit histories - know as the "sub prime" market. Whereas many banks and building societies, in large part, fund loans to their borrowing customers with money drawn in from savers, most lenders also grant mortgages and personal loans from funds they have borrowed from other, bigger banks.

Because many of the "sub prime" borrowers are missing repayments and defaulting on their loans as a result of of a downturn in their circumstances, the banks that have lent to them are losing out on the interest and repayments they should be receiving, and are running short of cash. The bigger banks that in turn lend to the mortgage lenders can see that these lenders are having their own difficulties, and are becoming reluctant to lend any more to them.

This has caused the money-go-round to grind to a halt, with some mortgage lenders in the US going out of business. In the UK, Northern Rock, the former building society turned mortgage bank, which raises much of the money it lends from the money markets, has been forced to turn to the Bank of England because it cant raise enough elsewhere in the markets.

(See Northern Rock runs aground - what it means for your money)

The Governor of the Bank of England, Mervyn King, told MPs last week the credit crunch is "likely to have consequences for the wider economy through the interest rates for borrowing and lending faced by households and companies".

At the same time debt charities are reporting an increasing number of people seeking advice about money problems. Citizens Advice, Britain's largest provider of free debt advice, said recently that debt accounted for one in three of all inquiries it receives, and had overtaken inquiries about welfare rights and other issues for the first time.

Secured loans are often sought by people finding it hard to meet other payments, such as credit cards. However, because lenders are now finding it harder to borrow money in the markets, and are increasingly worried about borrowers' ability to repay, they are increasingly imposing tougher conditions and turning away more risky customers, or charging them much higher interest rates.

Are you considering securing a loan against your property? Are you looking to borrow a large sum of money? Check out Moneyextra's secured loans.

Borrowers with anything but the most saintly credit history will, therefore, find it increasingly hard to find suitable loans. The new cautious approach applies not just to secured loans but also to credit cards, personal loans and mortgages.

Customers will not only find it hard to take out new loans, they may also be unable to switch loans and credit cards for better deals, either because the deals are not there to be had, or because the lender refuses to take them on.

15 July 2008 © Moneyextra.com

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