Debt Advice Help and Support
Debt Solutions
Debt Free Direct Help you to manage your debt.
Our advisors provide confidential
debt advice and could help you to:
- Reduce your monthly repayments
- Freeze interest on serious debt
- End creditor chasing
Lenders Continue to Deny Credit Applications
Written by on 1 May, 2009Over 3.5 million credit card applications have been rejected during the last 6 months, according to new study.
The study, by MoneyExpert.com also found that 1.6 million unsecured loan applications were declined in the same period, indicating that many financial institutions are still are still hesitant to lend. Add to that figure the declines for secured loans, hire purchase agreements and care finance applications, and the total comes to an enormous 6.25 million declines in the past six months alone.
This is the equivalent of over 120,000 credit rejections every week.
Lending activity has been curtailed due to lender concerns over economic stability, involuntary unemployment and credit borrowers defaulting on credit agreements. Many consumers who have defaulted on loans during the economic downturn will find it more difficult to borrow in the future due to having an adverse credit rating. Adverse credit means that a consumer is unlikely to be able to gain access to traditional lines of credit for the purpose of debt consolidation, particularly if a tenant or homeowner has little equity.
This has left consumers with little choice but to utilise existing credit lines, such as the credit card cash advance. uSwitch.com believes that over 700,000 people are taking a cash advance from one credit card in order to make the minimum monthly repayment on another. Given that the average APR is 29.97% on a cash advance, this only serves to worsen a debtors’ financial plight further.
A number of customers with existing credit card agreements are in the process of being reassessed by their lender. In light of deteriorating credit ratings, almost 20% of existing EGG credit card customers will now face an average interest rate of 26.9%. This may seem punitive given that the Bank of England has set base rates at just 0.5%.
The other principal beneficiary of the economic downturn is pawnbrokers with consumers able to borrow money based on the provision of collateral. Rising gold prices have really helped the industry as consumers are able to borrow larger sums of money. Many pawnbrokers also offer their own brands of payday loans and a cheque-cashing services to consumers that are struggling to pay their rent or mortgage.
Whilst access to traditional lines of credit are vastly more restricted, particularly for those who have adverse or ‘bad credit’, there are still lenders willing to offer money. However, the high APR on a pawnbroker or payday loan means that neither is really suitable for debt consolidation purposes.
Consumers struggling with unmanageable personal debt are likely to be better served by pursuing a debt solution such as an Individual Voluntary Arrangement (IVA), debt management plan or even bankruptcy rather than taking out yet ‘another loan’. Always consult a qualified debt counsellor before proceeding with any debt solution.
Useful links: IVA