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For people with bad credit, or no credit, it can be difficult to obtain a loan.  However there are lenders who offer loans for those with bad credit.  Majority of lenders only offer secured loans because they consider lending to those with bad credit a risky investment.  A secured loan means that the lender will require some form of security for the borrower that is equal to, or more than the loan amount.  The security offered by the borrower is usually their home or property.  However secured loans can become a bad decision if you fall back on payments, as the lender will be able to repossess the property to reclaim their funds.

When you apply for a bad credit loan, the lender will first check your credit score to determine if they will lend to you, it will also help them to determine what interest rate they will offer you.  Typically the interest rate that is offered to those with a bad credit history is higher than a standard loan rate.  The rate is higher because lenders are protecting their investment.  However, as with any loan the interest rate that lenders offer you depends on your personal situation.  It is best that you compare rates from various lenders to ensure you receive the best possible rate.

Bad credit loans are usually offered by lenders who have access to a variety of loan plans allowing them to offer you the lowest rate that fits your personal situation.  Those who have a better credit history are more likely to be offered a lower interest rate than someone who has a poor credit history.  However, you should be wary of any lender who offers a rate that you feel is extremely high.  You should never feel obligated to sign for a loan if you do not feel you are getting the best rate or the best service.

The high levels of bad debt may be forcing credit card companies and banks to reconsider what they offer consumers.  Debt reached its highest level in 2006, with more than 100,000 consumers petitioning for insolvency.  This resulted in high losses for credit card companies and banks.

IVA companies have gouged into the profits of unsecured loan lenders, resulting in more losses.

Combine these with the Office of Fair Trading’s move to limit bank charges and fees on overdrafts, and the banks are reeling under the burden.

Early in 2007, credit card companies and banks were scrutinised and rebuked for not following regulations and making sure that consumers could afford to repay their unsecured loans.

This came following reports from consumer groups which stated that many borrowers were not checked for proof of income, or even had their consumer credit information report checked, before they were given unsecured loans.

Banks are not only buckling under the pressure and asking for proof of income, and running credit checks, but they are coming down harder on borrowers who have bad debts.

The move is causing mixed emotions among consumers. However, only time will tell if consumers will find other ways of borrowing personal loans.  While the move by banks and credit card companies is motivated by their determination to slow their losses, it may have a positive effect on the population.

There has already been an increase in secured loans, partly because unsecured lenders can now force the sale of a home to repay a loan, and partly because of the lower interest rates.

With insolvencies and bankruptcies on the increase, the average UK consumer is apprehensive about the Bank of England’s motives and plans for the future.

The government remains firm in its belief that their actions are not causing a serious problem for most UK households. The Bank’s governor, Mervyn King, still said it’s not very likely that debt will become a significant problem.

“It’s a minority of households,” he said in November. “It’s a major social issue, but the numbers aren’t large enough to amount to a major threat to the overall level of consumer spending.”

“People are blindly taking on debt without thinking about how they’ll repay it,” said Louise Britain, head of personal insolvency at Baker Tilly, one of the U.K.’s top 10 accountancy firms. “As a nation, we have totally binged. I think the numbers of insolvencies will continue to rise.”

UK consumer debt equaled 104 percent of gross domestic product as of June 30, 2006, compared with 92 percent in the U.S., according to a report from New York-based accounting firm PricewaterhouseCoopers LLP said in November.

Total debt in the UK reached 1.3 trillion pounds ($2.6 trillion) in December. House prices rose 10 per cent in 2006, with 17,000 property foreclosures, according to the Council for Mortgage Lenders.

The industry’s assurance that the problem is confined to a small segment of society is no consolation for the charity debt management companies who field tens of thousands of calls each year, each one from a UK consumer who is struggling under the weight of personal and secured loans.

Recent changes to the insolvency laws have left many in the financial industry worried that the government has made insolvency too easy.

Louise Brittain, at the auditor firm Baker Tilly said:

“The 107,288 people who went insolvent this year wouldn’t fit into the enlarged Wembley Stadium. In 2006 there was an increase of 40,000 insolvents compared with 2005, enough to fill Stamford Bridge.

“Britain already owes more money than any other country in Europe and now we have the highest insolvency figures since records began in 1960. The extra number of individual insolvents has doubled each year since 2002. People are without doubt behaving irresponsibly with credit, blindly taking on debt without thinking how they will repay it.”

No one argues this. It is common to receive a credit card as a wedding favour with a £5000 plus limit, and the mailbox is full of applications for both unsecured and secured loans.

Vince Cable, Treasury spokesman for the Liberal Democrats, said regarding insolvencies:

“This staggering increase in personal insolvencies, alongside the equally dramatic rise in home repossessions, demonstrates the severity of Britain’s personal debt crisis.

“These are not freak figures. Sadly, they will deteriorate further once the recent increases in interest rates kick in, tipping even more people over the edge.”

Analysts are predicting a spike in insolvencies in 2007, far beyond the initial fears that 30,000 would declare insolvency in the first three months. The industry is still playing the blame game, passing blame between lending companies and the increase in the cost of living, including recent interest rate hikes.