Nothing can escape the credit crunch. It is not just the mortgage market that is changing by the day. The cost of borrowing is rapidly increasing. Personal loan products are continually changing and in some cases disappearing. So far this year around 27 personal loan products have been adjusted and over the last 12 months, 12 lenders have dropped out of the market

According to Moneyfacts.co.uk personal loan rates have increased by an average of 1.7%. “In the majority of cases, these have been increases across the board, with lenders combining large one-off rate increases with gradual small rises,” says Samantha Owens, Head of Personal Finance at Moneyfacts.co.uk.

She says the overall effect does not favour consumers looking for extra borrowing. “Anyone who takes out a £5,000 personal loan over three years will find themselves paying up to £386 more than if they had taken out the same loan at the same time last year.”

The problem is lenders are worried that borrowers will not be able to pay the money back. By introducing higher rates they are taking steps to ensure that we do not borrow a penny more than we need.

“Lenders are wary of customers’ ability to repay what they owe, so are becoming increasingly strict when it comes to choosing who they lend money to,” says Sean Gardner of MoneyExpert.com.

The more you borrow the more you pay. According to MoneyExpert.com rates on balances of £2,500 are up from 9.49% in January to 10.11% now, while the cost of a £5,000 loan is up from an average 9.76% to 9.93%.

The cost of lending on larger sums is also increasing. A £7,500 unsecured loan would have cost an average 8.3% at the beginning of the year. Now it typically costs around 9.21%. The average rate on a £10,000 unsecured loan was 8.88% three months ago. It is now 9.55%.

 “Over the last year we have also seen lenders reassessing how they offer personal loans, with more and more lenders adopting personal pricing or a credit rating assessment,” says Samantha Owen of Moneyfacts.co.uk.

However she says this is not all bad news for the borrower. “Whereas before a prospective borrower was either accepted or declined, now those lenders that offer an APR dependent on a credit rating will offer an alternative rate to those borrowers who otherwise could have been declined.”

With all these changes going on it is increasingly difficult to work out what the best deal is for you. “But this should not put you off if you are looking to borrow money,” says Sean Gardner of MoneyExpert.com. “There are still competitive rates out there, particularly for people with good credit records. Those in muddier waters can still borrow but may have to pay more than they would have done even three months ago. The best way to ascertain how much you’ll pay is by comparing the market online.”