Borrowers warned against missing loan repayments

An increasing number of consumers are failing to make loan repayments, new figures have revealed.

According to research carried out by MoneyExpert.com, more than 230,000 payments are missed every month - an average of 7,700 every day.

Since the beginning of this year, a total of 1,389,000 repayments on personal loans were reported to have been missed.

Overall, some three per cent of all loan borrowers were reported to have failed to have made a repayment during the last six months, an increase of two per cent from a similar survey carried out in 2006.

Chief executive Sean Gardner said: "This is yet another warning of real financial distress and a sign that finances are being stretched to the limit by recent interest rate rises.

"The concern has to be that people are missing repayments on unSecured Loans because they believe there’s not as much at stake as missing a mortgage repayment."

Mr Gardner pointed out that failing to make repayments on loans and credit cards is an unadvisable way for consumers to handle their finances, suggesting that those who do so face damaging their credit rating and even going to court.

"Burying your head in the sand is not the way to deal with financial problems," he added.

Further research from MoneyExpert.com indicated that the majority of personal loans currently on the market attract interest of less than eight per cent, with the most competitive deals having rates which are of about 6.5 per cent.

Despite these relatively cheap deals, some providers were reported to be offering loans with interest rates of nine per cent or above, with the mostly costly suppliers charging interest of about 28 per cent.

However, the financial services firm warned that pressure on consumers to make loan repayments could be further exacerbated if the Bank of England decides to increase interest rates over the coming months.

Despite two base rate rises already taking place this year, MoneyExpert.com pointed out that a further hike could happen "possibly as early as July" - a move which could well increase homeowners’ difficulty in making secured and home loan repayments.

Earlier this week, a study by GMAC-RFC indicated that a growing number of professionals aged in their 30s and 40s are being forced to take out a sub-prime loan due to a damaged credit report.

This was said to have been caused by a failure on the part of consumers to meet earlier payments demands for expenses such as credit cards and not reorganising finances sufficiently after a major change of circumstance such as divorce or illness.

The study revealed that about three-quarters of those with a sub-prime mortgage are aged between 35 and 54.

However, James Cotton, spokesperson for London & Country Mortgages, claimed that although consumers may be forced to opt for a bad credit loan if they keep up with these repayments they may be able to take out a competitively priced home loan in the future.

Meanwhile, Savills Private Finance representative Melanie Bien added those with "one or two blips, such as missed credit card payments" should still be able to get a competitively-priced personal loan.

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