Since the onset of the credit crunch and recent banking crisis, it has become particularly difficult for a person to obtain the personal loan they require, especially if they have a less than perfect credit history.

But even for those potential borrowers with a good credit rating, it has become increasingly difficult to obtain a good cheap loan, as lenders continue to withdraw from the market and increase the cost of their personal loan products.

New research from the inline consumer tool, TheLendingwizard.com, has found that the number of new personal loan products which are available to borrowers has dropped dramatically over the course of the past two years.

Research from the website has found that a large percentage of lenders on the high street will not offer a loan to a potential borrower unless they already have a relationship with that organisation, with a prime example being a main high street bank only offering loans to existing bank account customers.

According to the report, only 5 lenders out of a possible 26 on the high street, are prepared to offer personal loans to those borrowers who have not dealt with them before. These are Sainsbury’s, Tesco, Co Op, the AA and Zopa.

This figure represents just 19 per cent of the loan market, compared with 88 per cent of the loan market which was prepared to offer loans to non existing customers prior to October 2008.

Olivier Beau de Lomenie of thelendingwizard.com said “It remains a tough climate for those customers looking for credit at the moment. In order to limit risk many lenders have tended to restrict their new lending to existing customers, as they have the comfort of an intimate knowledge of how these people conduct their financial affairs.”

Over the course of the past few years, since the onset of the credit crunch, many home owners in the UK have seen the value of their home drop significantly. And with many people taking out high loan to value home owner loans and mortgages in the past, this has left many home owners with very little equity, or even negative equity in their home.

But the recent banking crisis has made high loan to value loans a thing of the past and with the particularly low level of interest rates at the moment, many borrowers have taken advantage of the ability to overpay on their home owner loan, whilst they are paying a cheap loan.

Attitudes amongst home owners have changed in recent years. Whereas a few years ago, people were taking equity loans out of their home in the belief that property prices could only ever go up, now people are looking to increase the equity they hold in their property, by reducing their existing loan balances.

The latest figures from the Bank of England have shown that over the course of the first three months of this year, UK home owners have increased their equity holding by around £3.2 billion. Over the course of the past two years equity levels have increased by £38.3 billion.

This has largely been down to overpayments on home owner loans and mortgages, but has also been helped recently by increases in property values once again.

Howard Archer, an economist at Global Insight said “The eighth successive and still marked, injection of housing equity in the first quarter of 2010 is the consequence of the ongoing desire of many people to improve their personal balance sheets. Furthermore, extremely low savings interest rates have made it much more attractive for many people to use any spare funds that they have to reduce their mortgages.”

Many individuals in the UK with a home owner loan or mortgage are finding life quite comfortable at the moment, particularly those who are on a variable rate loan, or who have already reverted to their lender’s standard variable rate loan.

Cheap loan rates on their mortgage, due to interest rate cuts from the Bank of England, have meant that many borrowers have seen their monthly loan repayments fall significantly, in some cases saving an individual hundreds of pounds every month.

Whilst this is clearly good news for borrowers, these low loan rates have created a certain level of apathy and complacency amongst those people with variable rate home owner loans, with many individuals of the opinion that they are on the best possible deal they can be for their loan.

In some cases this could well be true, but nevertheless, borrowers need to be aware of the details of their loan and how changes in interest rates could affect them.

New research from the Consumer Finance Education Body (CFEB) amongst home owners with loans on their properties, has found that around 75 per cent of all borrowers have no idea what effect an interest rise of just one per cent would have on their monthly loan repayments.

Furthermore, around 15 per cent of borrowers have no idea what type of loan they have, whether it is fixed, discounted, tracker or standard variable rate and a similar number are unaware of when their current deal expires.

Tony Hobman of the CFEB said “Interest rates have been at record lows for some time now. Although there is uncertainty about when this will change, it is clear from our research that many people with mortgages haven’t thought about what it would mean for their monthly payments, or where they would find the extra money in their household budget if their mortgage rate was to go up.”

There have been growing concerns within the government about the level of ignorance amongst the British public in general, when it comes to taking out a new personal loan and the fact that a large proportion of borrowers appear to be applying for a loan without fully understanding what it is they are getting into.

A recent survey conducted by the Learning and Skills Council found that around 90 per cent of people with loans and other credit agreements, were unable to pass a simple test about loans and financial calculations.

As a result of this, a review of the loan industry is to be conducted, with one possible outcome being that potential borrowers are required to sit a test before they are accepted for a new loan.

Such tests would be designed to check that the individual has a full and clear understanding of the loan they are applying for and the test would have to be passed by the borrower before the lender will sign off the paperwork and allow them to have the loan.

It is hoped that this course of action will help stop people taking out loans which they do not understand and will not be able to repay in the future, thereby reducing the growing number of insolvencies seen in the UK every year.

Although many schools are now starting to introduce lessons in financial matters, including loans, this is too late for many individuals who are currently borrowing on loans and credit cards without understanding the full implications and consequences of their actions.

Edward Davey, Consumer Affairs Minister, said that the review was designed to improve the safeguards for potential borrowers who were considering taking out a loan or other form of credit agreement.

The recent credit crunch and banking crisis has left many individuals disillusioned with the high street banks and an increasing number of people are now looking for an alternative way of obtaining a personal loan, or a home for their savings.

One such option is Zopa, the person to person unsecured loan company. The internet based loan company allows individuals to lend money to other people registered on the website at reasonable rates, based on the borrower’s credit rating.

Many borrowers who either do not trust banks, or would be rejected for a bank loan, are able to obtain a cheap loan from Zopa, whilst those looking to lend money are able to get a far better rate of interest on their savings than they would from a traditional bank deposit account.

Since the high street banks have tightened their lending criteria and made it much harder for an individual to obtain a personal loan in the past couple of years, Zopa have seen a significant increase in their levels of new loan business.

Over the course of the past five years, Zopa has offered personal loans to individuals worth around £71 million and more than 50 per cent of these loans were offered in the past twelve months alone, which reflects borrowers’ lack of confidence in high street banks.

In the majority of cases, a loan form Zopa is likely to be significantly cheaper than the equivalent loan from a traditional bank, as individuals are lending directly to other individuals, without the overheads of administration costs and shareholders.

Similarly, those offering loans through Zopa have seen increased returns on their savings above a bank deposit account, with lenders receiving a typical return of 7.9 per cent on their investment and as Zopa screen borrowers carefully, default rates on loans are particularly low at just 0.7 per cent.