The subprime crisis in the United States with the resulting turmoil in the financial markets, the subsequent credit crunch and the Northern Rock crisis have all led to a shrinking personal loan market, with lenders becoming stricter about who they will lend to and how much.
According to Moneyfacts, the personal loan market shrunk by 10% in November with lenders such as Eskimo Loans, GE Money, Leeds Building Society and LV= all withdrawing their unsecured products.
Leeds Building Society withdrew at the beginning of November. It was offering competitive charges on payment protection insurance (PPI) and low rates on small loans. GE Money was next to follow, withdrawing its competitive rate of 6.9% on loans between £7,500 and £25,000.
Samantha Owens, head of personal finance at Moneyfacts, commented: "Competitive loan rates can still be found, especially if you are borrowing larger sums of money. But as rates continue to rise and lenders begin to withdraw from the market, it could look a very different picture in a few months' time.
"Rates have been rising gradually for some months, with competition putting increased pressures on margins and bad debts on the increase. But the credit crunch seems to be the final nail in the coffin, as lenders continue to raise rates but, more surprisingly, withdraw their products altogether.
"Anyone looking for a loan would be advised to act sooner rather than later as there seems to be no let up in interest rate rises. If PPI is reformed, which it's very much in need of, the landscape of competitive rates could become a thing of the past."
Borrowers who have a less than perfect credit history might find the range of unsecured products available to them diminishes, or they will have to afford much higher repayments due to a hike in interest charges as lenders become more selective on who they lend to.