"The era of cheap credit is over. Banks are no longer falling over themselves to offer low-interest rate loans for new cars, kitchens and holidays. But if you really do need a loan (and are confident you can afford the repayments) where can you find the best low-cost deals?
The bad news is, that although the Bank of England has kept interest rates at rock-bottom levels, on personal loans they have gone up. In the last 12 months, on a £5,000 loan, the average rate has jumped from 10.57% to 12.55%, according to research from comparison website Moneynet.co.uk.
And it's not easy to work out whether you can afford a loan, because more than 80% are advertised with "typical" rates. This means you will not be offered the headline rate unless you have a squeaky-clean credit record. Instead, you will be quoted one which reflects the lender's perception of how risky you are – though rules state the advertised rate must be available to two-thirds of applicants.
Many other loans are personally priced – again based on your credit score – leaving few quoting the actual rate you could be offered if accepted. So, who's offering the best rates?
Sainsbury's Bank has a typical rate of 7.9% APR for loans of between £7,500 and £15,000, provided you hold a Nectar card.
This is just beaten by Nationwide's offer, for current account customers only, of a typical 7.7% for loans of between £5,000 and £14,999.
Marks and Spencer Money has a deal giving cashback of 10% of the loan interest if it runs its full course. With the cashback, this equates, typically, to 7.9%.
One outfit, personal loan.co.uk – a division of Co-op Bank – offers a typical rate of 8% on loans from £5,000 to £25,000, while a number of big names – including Abbey, First Direct, Alliance & Leicester and Smile – are quoting typical rates of 8.9%, though in some cases these rates are for existing customers only.
Andrew Hagger of Moneynet says: "Rates are, on average, almost two percentage points higher than this time last year, but that's not the end of the bad news. Lenders will operate a far tougher risk policy in the current economic climate, meaning you'll need a perfect credit history to secure a best-buy rate." It's not hard to fall foul of internal credit scoring. You won't even get off first base if you aren't on the electoral register or if you have county court judgments for not paying a debt. Lenders will also check you are up to date on the rest of your credit.
It's not enough to be simply paying the minimum on your credit cards. Companies will also look at whether you are running close to your credit limit, and how many credit cards and other loans you have. Too much available credit, even if you pay off your bills in full each month, and you could be turned down, offered a higher interest rate than the one advertised, or a smaller loan than you wanted"
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( 3 / 258 )Despite the recession it would seem that British consumer debt is actually falling as more people are seeking to repay their debts. According to reports it would seem that the bulk of the repayments have been coming from those in real financial trouble trying to avoid bankruptcy.
"The Bank of England data indicated that consumers paid back £635 million more than they borrowed during July – the first time this has happened since 1993, when the statistics began being collected in their current form.
The fall in the total level of consumer debt, dipping to £1.46 trillion, means thousands of prudent households have started to trim their credit card bills, pay back their mortgages and reduce their unsecured loans.
Debt experts welcomed the development saying it was about time consumers stepped "off the debt spiral" and got their finances in order.
However, economists warned that it was bad for the Treasury and businesses if consumers stopped spending and borrowing.
Louise Brittain, debt partner at accountants Baker Tilly, said: "Thank goodness. This is really good news that the British public is finally doing the sensible thing and not endlessly borrowing and is now stepping off the debt spiral. People have done nothing but spend now and pay later for the last decade or so, and they have realised this just can't go on for ever."
The biggest fall came from mortgages, with home owners paying back £418 million more during July than they borrowed.
Part of the move into negative territory – again the first time this has ever happened – has been driven by banks and building societies cracking down on their lending and only offering mortgages to people with good credit histories"
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( 3 / 265 )With news that many are struggling to pay their rent or mortgage, the Government have launched new information online to help those who need it most. It is hoped that by doing this many will be able to avoid being avicted from their homes.
"A series of animated videos, interview clips and articles has been put on to the Directgov website by the Ministry of Justice.
The material aims to answer questions asked by people in arrears and covers everything from what to do if you think you may have a problem keeping up with rent and mortgage payments to communicating with landlords and lenders and preparing for a court hearing.
It also gives details on where people can turn for help if they have financial problems.
The Government has launched a raft of measures to try to help people who are struggling with mortgage repayments stay in their homes, while mortgage lenders are also showing greater levels of forbearance.
Figures released by the Council of Mortgage Lenders earlier this month showed that the number of homes that were repossessed during the second quarter had fallen by 10pc compared with the previous three months to 11,400.
Bridget Prentice, the justice minister, said: "The Government has taken considerable steps to ensure people struggling to pay their rent or mortgage get the help they need to stay in their homes.
"Remortgage repossession figures released earlier this month show that the number of people facing repossession has considerably reduced since this time last year, but we're not complacent.
"The information being made available today is easy to understand and accessible via the Directgov website and aims to help people find a way out of their financial difficulties and avoid repossession."
The information can be found at www.direct.gov.uk/mortgagearrears and www.direct.gov.uk/rentarrears.
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( 3 / 269 )If you have an American Express card but have not used it for some time then you may be interested to hear that you could still be charged!.
"American Express is to slap a £20 annual "dormancy" fee on customers who don't use their Platinum cashback credit cards for a year.
The fee will be introduced immediately for new customers and from 1 October for existing cardholders to cover the administrative costs of running accounts left idle.
Amex is also reducing the top tier of cashback available to new borrowers from 1.5% to 1.25%, and increasing the amount of spending they need to do to earn cashback from £2,400 to £3,000 a year.
From 1 October existing customers will see Amex increase the level at which it pays out cashback from £12 to £25, meaning they will need to spend £4,250 to qualify for a payment compared with the current level of £2,500.
An Amex spokeswoman said the fee would be charged "once existing cardholders who haven't used [the account] for more than a year pass their card 'anniversary'".
Tom Allder, Amex's vice president UK lending, said he was confident the card was still the best on the market for high spenders, but changes had been needed to reduce costs.
"Rather than making changes across the board we have looked very closely at card member usage to ensure that we continue to offer the best proposition we can for our existing card members," he said.
"What this means is we have been able to safeguard the 1.5% top rate for existing customers while still offering a competitive on-going rate of 1.25% to new customers at a lower banding of £7,500."
Rivals Santander and Lloyds TSB levy a fee for low (or no) card use: the Santander Zero credit card and separate Santander credit card carry a £10 dormancy fee if they are unused for six months. Lloyds TSB charges a £35 annual fee regardless of credit card type. In 2007, it also wrote to low-usage cardholders to inform them of a £35 annual charge for inactive cards.
The letter was sent to all credit card customers who hadn't used their plastic for more than 12 months. Although many subsequently cancelled their cards, a spokeswoman said, customers who still have their cards and don't use them have since paid £70 in inactivity fees.
Borrowers should expect more dormancy fees to be introduced as credit card providers see their profits squeezed by the downturn, according to David Black of financial researcher Defaqto"
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( 3 / 276 )For those in debt it can be tempting to turn to a loan shark to try and rectify the situation but this is an option that you should avoid at all costs.
"Adam Fox went to a loan shark when he wanted £100 to buy a car stereo that was on special offer. He agreed to pay back the entire sum several days later, and was charged £20 interest.
Mr Fox, 26, of Stoke-on-Trent, had successfully borrowed money from a loan shark in the past, but on this occasion failed to pay the full amount owed on the due date — so the lender doubled the interest charge.
As the debt mounted, Mr Fox found it increasingly difficult to repay the growing amounts, and missed more payments — ending up being charged £100 interest every day. “Every time I didn’t pay, it cost me more and more,” he said. “There was no way that I could pay this, and the entire loan had reached £1,000. The loan shark said that he would break my legs if I didn’t pay up. This is the kind of thing that happens to people around here.”
Mr Fox, right, turned to A4e, a debt advice agency based in Stoke. Julie Cliffe, a debt adviser at the agency, said: “Mr Fox was on benefits at the time, and we found that there was additional income to which he was entitled.”
He also turned to family and friends to raise the money to repay the loan. “I’d never go to a loan shark again, never, ” he said.
Ms Cliffe said: “The worrying thing here is that the loan shark was not prosecuted and is most probably still trading.”
Where there are illegal loans, there are usually other debts too. “Mr Fox had faced eviction from his council-run accommodation on three occasions, but we have managed to help him,” Ms Cliffe said.
She said it was common to find borrowers who had been threatened with guns and physical violence.
Pressure among vulnerable groups to turn to loan sharks has been exacerbated by the growing difficulty of obtaining mainstream credit from high street banks. Many people have accumulated debts from before the recession, and now find they have few options.
Chris Peel, director of A4e, said: “We’re seeing more people these days. Clients come to us with priority debts such as rent arrears and council tax, but once we scratch the surface we find people have turned to illegal credit to pay off legal borrowings.
“As people’s loans become more complicated, they become less aware of what is legal and what is not, compounding the difficult situation they are in,” he said"
If you are in debt and would like help then why not consider an IVA. This is a legal and government approved method of resolving debt that avoids the consequences of bankruptcy. If you owe over £15,000 to three or more creditors and can't afford to meet the repayments then you may be eligible for an IVA.
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