Price hikes for those with tarnished credit history
Before the credit crunch, lenders were falling over themselves to offer loans to would be borrowers. However the banks and indeed the taxpayer are now counting the cost of what is regarded as a period of over enthusiastic lending.
The collapse of Northern Rock in September 2007 signalled a sea change in attitudes and the carnage that ensued with accusations of reckless lending has led financial institutions to considerably tighten their criteria on who they would, and who they would not, lend to.
Despite the Bank of England base rate being at a 300-year low of 0.5%, the interest rates on personal loans for those with less than perfect credit history have been creeping up steadily. The financial institutions that are willing to provide unsecured borrowing to this group of borrowers do so at a cost with loan rates in excess of 20% APR the norm, while those fortunate to have a good score can obtain loans for around 4% APR. The lack of appetite among high street lenders to lend to customers with flaws in their credit reports means the cost of credit for these people has jumped in recent years. A report by Dr John Glen, Senior Lecturer at Cranfield Business School published in February 2014 titled 'The Cost of a Poor Credit Rating' suggested that an average family with a low credit rating will end up spending around £1,170 more each year on credit such as loans, credit cards, car finance and mobile phone contracts than those with healthy credit scores.