The Financial Blog

According to Uswitch.com a staggering £20.9 million worth of unsecured loans were given last year with no proof of income asked for by the lenders providing them! Only 21 per cent of borrowers provided proof of their income.

This is really just one of a few amazingly poor statements that makes me think the banks or lenders, whatever you want to call them, have caused the credit crunch by lending money to people with little or no real concearn for their ability to repay what they borrow.

I watched a BBC programe this week where one of the financial experts said the bottom line with every single form of credit is that the borrower has to be able to repay the loan, whatever form it’s in i.e. a loan, a credit card or a mortgage - you must be able to afford repayments. This is what the banks have simply overlooked or chosen to ignore.

More Uswitch.com findings include;

• 45 per cent of people didn’t get a loan from their current account provider so the company lending them the money probably had little or no credit information on their customers.
• Nearly 1.3 million loans were given for debt consolidation purposes and less than 25 per cent of these people actually paid off existing debts with their loan.
• 26 per cent of borrowers who did not pay off their existing debt with the loan went on to borrow an additional £2,221 each, equating to an additional £744 million of debt!
• Very worryingly 6 per cent of people who got an unsecured loan then took on additional debt to try and keep up with repayments.

The total of unsecured loans borrowed last year was £29.9 billion, and the research from Uswitch.com reveals that around £20.9 billion of this would have been lent to people without them providing proof of income. Uswitch say that over 600,000 sucessful loans application forms didn’t even ask the borrowers how much they earnt.

Personal finance expert at uSwitch.com, Mike Naylor, said: “With more than 7,716 loan repayments being missed every day and record write-offs, you might think that lenders would have learnt their lesson, but the potential profits have clearly been too good to resist.  While the credit crunch has forced lenders to tighten up their lending criteria, these latest amendments to the Banking Code do not go far enough to help promote responsible lending in all cases.”

So I say agin, I think the lenders really only have themselves to blame for the credit crunch and it’s not fair that the consumers are left to pick up the pieces when banks increase interest rates, withdraw mortgage products and tighten lending criteria now that it’s all too late.

The banks shouldn’t have lent the money to half of these consumers in the first place…

This entry was posted on Friday, April 4th, 2008 at 10:28 am and is filed under Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.