This year’s global financial melt down remains the biggest issue of the year given its general impacts on all and sundry. But as the years draws to a close its effects on loans and accessibility to all credits facilities are monumental.

Personal loans and the crisis

Whereas in the beginning of the year, borrowing for whatever purpose, was easy, the situation now is quite different. Apart from the fact that lending criteria have since been raised to make it very hard for individuals and small businesses to obtain loans, the number products available also shrank. According to recent figures there are just 57 personal loan products on the market, currently, for anyone seeking to borrow £5,000 or less. This is almost a 50 per cent fall from 105 at the beginning of the year.

In addition to this the travail of borrowers is worsened by the sharp rise in the average cost of borrowing, up from 10.65 per cent at the turn of 2008 to 29.4 per cent, at the end of the year.

The study also revealed that the annual percentage rate (APR) being charged by lenders has risen dramatically because of the increase in the number of loans being offered to higher-risk borrowers. It should be noted that risk-based pricing has become an order since the crisis fatally dealt with many lenders as borrowers defaulted and debts that were unpaid had to be written off as bad debts.

The travail of small businesses

Small businesses’ plight in the midst of the financial crisis drew the attention of the UK government as many of them found it rather too difficult to access loans. As a result of this many began considering folding up and retrenching employees. However, in a bid to prevent this, the government, which earlier helped High Street banks via massive bailouts, tried striking a deal in which the banks would make loans available to the small businesses at 2007 rates.

Even as this was seen as a payback time for the banks to the government’s gesture, they remained quite unwilling to do this. And the government found this stand rather worrying.

The trouble with this proposal is that the banks are being quite cautious in lending and the adoption of tougher lending criteria clearly suggests this fear. Yet they should not be blamed given what happened to major banking giants in the UK, US and other parts of the world.

Base rate cuts and home loans

Since the beginning of the year the Bank of England has cut base rates a number of times, bringing it down to 2 per cent from 5.5 per cent. The logic behind this cut is that lenders would ease the burden on borrowers by passing on the cuts. This, analyst have explained, could see many people struggling with their mortgages saving hundreds of millions of pounds in the next month alone. By the end of 2009 they would have collectively saved about £9 billion.

Despite this bright prospect, it was also feared that some home loans might have been taken out with certain conditions or terms called ‘collars’ or ‘floors’. Such conditions make it impossible for borrowers to enjoy further rate cuts being passed on to them at a certain point. This is a matter between lenders and borrowers, which must be made clear at the very beginning of the loan process.

In spite of all that was experienced by both lenders and borrowers this year due to the financial downturn, however, 2009 is predicted to be much tougher. It is then that the real impacts of the crunch, it is feared, would clearly make themselves felt. But careful planning could help many people weather the storm.