Recent findings show that there has been a 37 per cent drop over the last two years in the number of lenders offering unsecured personal loans. There has also been a drop in the rate of enquiries for unsecured loans products, according to recent figures from a price comparison website.

Barclaycard is the latest lender to pull out of the unsecured loans market, but loans are still available through Barclays Bank. A number of lenders have also withdrawn in the last two years, including the AA, Britannia BS, Direct Line, Goldfish, Intelligent Finance, Liverpool Victoria, Lombard Direct, MBNA Europe Bank, MINT, Northern Rock and Virgin Money.

However there are lenders that remain in the market, but they have increased the cost to borrowers, with the average rate on a £5,000 loan rising by 3.7 per cent, from 8.7 per cent in July 2007 to 12.4 per cent in July 2009.

'Lenders pulling away'

Louis Kaszczak, the head of the price comparison website, said: "Many lenders are pulling away from unsecured lending as the risk of customers defaulting continues to increase.

"Latest figures show that unemployment has risen once again. Borrowers struggling with repayments will inevitably forgo repayments on unsecured lending first, while trying to maintain their secured lending commitments such as their mortgage. Those lenders that do remain are charging a much higher rate of interest in order to offset the potential risk.

Mr Kaszczak added: "Borrowers requiring a £25,000 loan over five years will now have to pay an additional £1,334 in interest, compared with two years ago.

"Seventy-eight per cent of the loans available on the market are risk based pricing. Only two thirds of customers will get the advertised typical rate.

"While shopping around is key, borrowers need to be wary of making too many applications as this will leave a mark on their credit file and may have a detrimental effect on their changes of being accepted for a loan."

Nationwide reduces loans rate

Another lender which is providing loans is the Nationwide. The building society has reduced its personal loan rate to 7.7 per cent typical APR, which represents a 0.2 per cent decrease on the previous rate. The reduction makes Nationwide a market leader when it comes to offering loans of up to £10,000 as closest rivals Abbey and Alliance and Leicester offer typical rates of 8.6 per cent APR.

Tim Moss a spokesperson from a price comparison website, said: "Nationwide has really bucked the trend in the loans market by offering its existing customers the most competitive personal loan rate available by quite some margin.

"Loans rates have been going up since the start of the credit crunch - in April 2008 best buy loans were around 7.34 per cent, but have now risen to closer to 9 per cent."

Mr Moss believes this could be a sign that the loan market is recovering.

He added: "This is an indication of green shoots in the loans market and if others follow suit there will be a big shift in the cost of borrowing for consumers. As unsecured loans are the riskiest of all lending for banks, a movement such as this to gain market share is great news for consumers."