Cheap Credit Enters Last Chance Saloon

Yesterday's budget demonstrated one thing, that the economy is no longer awash with money. As a result, loans regardless of what form they take are going to be increasingly hard to find at competitive rates in 2008. The treasury has little money, banks have little money and therefore businesses have little money to invest.

It would appear to be a bad time to apply for a loan, however inter-bank lending in the short term has just gotten a little easier thanks to the central Bank's decision to free up capital by selling off secured loans to add an extra £99bn to the world economy. This week saw share prices hit their highest peaks of the year and although the budget might appear reactionary in the long-term towards expenditure, it is still a shrewd move as it has helped restore confidence to the markets.

This could be the last chance saloon for favourable rates on borrowing for quite a while. If you own your own home it is still possible to get loans on say £20,000 at 5.9 per cent fairly easily. This is favourable to rates of around 2-3 years ago, and it is now fair to say that things are not going to be getting much better than this in the future. Personal loans, from supermarket lenders such as Asda or Tesco are still offering deals that require you to pay nothing for the first three months and then a rate of around 6.9 per cent APR upto £25,000. This can be achieved at an even lower rate if you negotiate with your bank, but be warned, they will be keen to offer lower rates with variable APR packages so they are protected if the worst should happen in the economy.

Julian Jessop, economist at research house Capital Economics said: "The Federal Bank's willingness to pull out all the stops simply underlines the fact that it is unwilling to take any risks with confidence either in the financial system or the US economy, especially with the later almost certainly in recession."

The US is indeed struggling, with all the hallmarks of recession that we have so far avoided. They are seeing a huge rise in housing repossesions and unemployment rates, which means that the Central Bank will not be able to bail out the European Central Bank (ECB) in the future. A report released yesterday by IT consultancy firm Capgemini has predicted that global banks will lose upto 36 per cent of their next income over the next 10 years. Gambling with variable loan rates does not look favourable looking into the crystal ball of most analysts.

In fact, things may never be so good again as tighter regulatory rules mean that lenders will no longer be able to give away money quite as recklessly in the past. Cheap deals such as pay nothing over 3 months on loans, 0% on balance transfers with credit cards and 110 per cent mortgages will almost certainly become a thing of the past as lenders learn that it is best to get money as soon as possible from customers, rather than getting them to pay more in the long term, but finding as they are now, as in the US, that they cannot get the money back. For Brits, this could be the last opportunity to obtain cheap credit.nnnnnnn