Higher loan rates inevitable

Almost 50% of those applying for loans have been rejected - up from a third just 6 months ago. In addition, lenders have tripled their rates for high risk customers.

Several loan providers have indicated that they are to pull out of the unsecured loan markets as the scarcity of credit continues following the summer's sub-prime credit crisis, furthermore, loan rates have been driven up by 4% over the last month.

The companies which have withdrawn from the unsecured loans market are GE Money, Leeds Building Society and the company formally known as Liverpool Victoria.

Bob Sturges of Money Partners said it is likely that other providers will follow suit.

Lisa Taylor from Moneyfacts.co.uk, the price comparison website, said that the number of withdrawals from the market is ‘highly unusual'. She added that the fall of such a range of different providers with varying levels of competitiveness is an indication of how far-reaching the credit crisis has become.

Loans have become increasingly popular with people trying to juggle different debts, with nearly 70% of loans used to pay off other debts. The tightening of lending criteria and increasing rates could be a major financial headache for many already struggling families.