Personal loans are expected to undergo many changes during 2013. While personal loans will remain popular for as long as individuals are in need of money to borrow, individuals have become slightly more responsible with their finances and have been reducing the total borrowing that they have been undertaking from banks. This, combined with the lower interest rates, has led to decreased profitability for personal loans for borrowers.
Lenders have been less likely to lend to borrowers unless they meet higher thresholds for income levels, credit history, and debt to income ratios. Many individuals therefore are no longer qualifying for personal loans or only at higher interest rates. This trend is expected to continue in 2013 and it is expected that there will be a further reduction in personal loans to individuals with bad credit histories. For those with positive credit histories, interest rates have remained low and are expected to remain low for the remainder of 2013. As a result of this, lenders are not quite obtaining the return that they would like to on personal loans. Despite low rates, individuals have been unlikely to borrow large amounts due to uncertainty in their own personal finances. Furthermore, there has been an increase in the amount of debt consolidation and refinancing that has been going on as individuals have been attempting to benefit from the lower interest rates.
Refinancing and consolidation is expected to be another trend for 2013. For personal loans that have higher interest rates, individuals are expected to refinance to benefit from the low interest rate environment. In addition, many individuals are consolidating other types of debt into personal loans to capture the lower interest rates currently available for them. Examples of debt that is likely to be further consolidated into personal loans are credit cards, pay day loans, store credit and debt, and auto loans. Lenders often are able to benefit from refinancing fees on debt in addition to the interest on these personal loans.
Personal loans are therefore expected to remain popular for borrowers in 2013 due to their low interest rates in comparison to other loan types available for individuals. Lenders are expected to be cautious when lending though individuals with positive credit histories should be able to continue to borrow. Furthermore, borrowers are expected to further consolidate other loans with higher interest into personal loans to take advantage of the interest rates available to them.
Author bio: Hello readers, I am Amy Lawson from London. I am into finance. I have written many articles on hmrc tax credits. You can catch me on @financeport.