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Secured loan market diminishing

First Plus has become the latest casualty of the credit crunch. The secured loan lender has announced that it would be closed to new applications from August.

First Plus is not the first lender to withdraw from the secured loan sector. Since July last year, seven other lenders have done so:

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• Alliance & Leicester
• Breeze Loans
• Capital One Bank
• LoanOne Intermediaries
• Money Partners
• Picture Financial
• SPPL

As the current economic downturn continues, the demand for secured loans by second charge remains. Secured loans offer consumers the option to consolidate their debts over longer terms of up to 25 years, whereas unsecured loans only offer up to a maximum term of 10 years with seven years being the norm. This is appealing to those who wish to reduce their existing outgoings by as much as possible.

If a consumer's home is repossessed, it is likely to be sold at a lower level than market value and once the first charge mortgage is repaid and legal fees etc are deducted, there is likely to be little left for the secured loan lender to recoup the debt owed to them.

The number of lenders remaining has been greatly reduced and with First Plus's owner Barclays yet to announce if it will continue with its own loan and that offered through its Fair and Square brand, the numbers could reduce even further. The lenders still in the market are restricting the range of products they offer and increasing the rates on those that remain.

If the credit crunch can cause one of the biggest lenders in secured loans to throw in the towel, it will be interesting to see if the other providers can weather the storm. 

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