Looking at the base rate being held unchanged this week Legal and General are forecasting a difficult Summer for borrowers as lenders take a cautious approach.
It is the view of Legal and General, as well as many other observers, that financial institutions went overboard with lending when money was cheap and easy to get hold of. Now they are going overboard the other way by being ultra cautious when lending to anyone.
Consumers will hope that something shifts in the market to free up money to cover general living expenses in some instances, where people have borrowed to maintain a standard of living and can no longer gain access to credit. Legal and General are not expecting that to happen as the cautious approach is maintained.
Liverpool Victoria has received a fine of GBP840,000 because of serious issues with the way it sells PPI or Payment Protection Insurance.
It appears that the Banking Services arm of Liverpool Victoria was automatically adding PPI to personal loan quotations even though prospective customers had not asked for it. The good news for any customers affected is that the amounts taken will be paid back as soon as possible to the 14,500 customers who had money taken from them in this way.
The average cost the addition of PPI placed on each person with a personal loan is around GBP1,600, which is a considerable sum when taken as a percentage of the amount borrowed. Liverpool Victoria customers are sure to appreciate the windfall, as well as the apology that will go with it.
As the pressures on global credit increase so personal loans are feeling the squeeze, with some rates going up by around four percent, though Eskimo Loans rose by only 1 percent.
In a week when large numbers of lenders thought the time was right to increase their personal loan interest rates the consumer saw how the global economy was affecting them at a personal level. As the banks fight to maintain lines of credit and look to lend money only to those with the lowest perceived risk so interest rates are bound to rise to cover the costs of bad debts.
The worry is that this can cause a self-fulfilling prophecy, with consumers facing increased interest rates they have to pay more out each month, which leads to them potentially struggling to make repayments and then becoming a bad debt. On a purely statistical basis though the lenders will recoup more in extra interest overall than they will lose in bad debts, so they feel their actions are justified.
As mentioned, against a backdrop of some quite large rate increases the move by Eskimo Loans to add just one percentage point to their basic rate was seen as a reassuring step by their customers. They can deal with this level of increase though would not like to see many more on top of it.
