Loans

Its not just mortgage borrowers that are feeling the effects of the credit crunch, according to Moneyfacts, personal loan borrowers are also seeing increased rates and product changes.

Personal loan rates have increased by 1.7% on average over the past year, according to research from the financial comparison site and there have been 27 changes to personal loan products in 2008 alone.

Samantha Owens, head of personal finance at Moneyfacts, said: In the majority of cases, these have been increases across the board, with lenders combining large one-off rate increases with gradual small rises the overall effect does not favour consumers looking for extra borrowing. Anyone who takes out a £5,000 personal loan over three years will find themselves paying up to £386 more than if they had taken out the same loan at the same time last year.

Over the last twelve months, 12 lenders have dropped out of the market altogether, according to Moneyfacts, including GE Money, Leeds Building Society, Virgin money and Morgan Stanley (SPU - news) .

The lenders left in the market have also been clamping down on those who borrow more. Traditionally, the bigger the personal loan, the lower the APR. However, some lenders have increased the rate offered on higher loans. In some cases, the rate on the higher tier has actually gone above that of the tier below, Owens added. For example, a loan of between £15,001 and £20,000 from Moneyback Bank currenly carries an APR of 7.1%, compared to 6.9% for loans between £7,500 and £15,000.

Owens also warned that lenders have begun to adopt personal pricing or a credit rating assessment for personal loans. She explained: Whereas before a prospective borrower was either accepted or declined, now those lenders that offer an APR dependent on a credit rating will offer an alternative rate to those borrowers who otherwise could have been declined. But what it does mean is that it is increasingly difficult to work out what the best deal is.