All About Loans Weblog

In the wake of the credit crunch it would appear that many credit card companies are increasing their interest rates on all customers. Customers who have borrowed large amounts and always meet their monthly repayments appear to be at most risk of seeing their interest rates go up by as much as double.

It would appear that the worst credit card firms for increasing their interest rates in recent months are the American owned ones. MBNA and Capital One are now charging some of their borrowers as much as three times more than the typical rate they advertise.

Capital One has stated that it is increasing the rates for many of its customers due to the changes in market conditions. However many critics are accusing the card companies of profiteering from customers’ misery.

Other MBNA customers have reported that after seeing their interest rates more than double they complained. However while MBNA did reduce rates they did not bring it down by the amount they had increased it.

Many people are now deciding to dump their cards if they are being treated unfairly and move to another lender.

If you have a large balance than you are best transferring to a card with a 0% offer or a card that promises a low rate for life. This stands for all customers. If you can switch to a card that promises a low rate for life than you should. This may not be possible for those customers holding large balances, in which case a cheap loan is the best option. It may not offer you the prospect of further borrowing, but a loan cleared even at the lowest rate will still be cleared sooner than a card paid off by minimal amounts each month.

Mint is currently offering a card with 0% balance transfer till January 2009 which then reverts to a rate of 14.9% along with a 2.5% fee.

News in from the British Retail Consortium (BRC) suggests that customers are shunning plastic and turning back to good old cash.

A survey conducted last year showed that 60% of purchases were made by cash, compared with 54% in 2006. The figures released did not offer a break down by month or quarter, so we can only speculate that most of the upturn in cash spending occurred in the latter part of the year, once the credit crunch had started to hit.

However, even before the prospect of recession was spoken of, most financial experts agreed that consumers were slowing turning away from credit cards and personal loans to fund their spending.  When the sub-prime lending crisis hit America, consumers were already getting twitchy about the ‘culture of lending’ headlines popular in the news and starting to review their desire for easy credit.

Many customers are still very happy to take out a loan for a holiday, new car or even just a spending spree, but lenders agree that most of the clients approaching them at the moment are looking to consolidate debt or lessen their debt burden.

With the cost of living rising, most sensible borrowers are now looking at ways of cutting their monthly expenditure - hoping to swap their high interest credit cards for a cheap loan.

It is no wonder that the BRC find that people currently prefer to spend the money in their pockets, rather than use plastic. With a credit crunch reality, fast rising living costs and wages static, people no longer want to borrow today and worry tomorrow, because they are already worrying.

The last big crash in the property market happened back in the early 1990s and there are definite similarities between now and then, such as the rapid house price increases that have stretched affordability issues to the limit. Back in the early 1990’s it was high interest rates which started the crash, compared to now where it is simply the massive size of the average UK mortgage.

However there are also crucial differences between now and then. We don’t have the same sort of economic crisis that was affecting the market back in the early 1990s when people had no choice but to sell their homes as house prices fell and unemployment skyrocketed leading to a massive rise in negative equity.

In the 2008 housing market, house prices have already seen some startling drops. In March, house prices fell 2.5% on average across the UK, a plummet not seen for sixteen years in the midst of the 90’s crash. However, these days most sellers have the option of sitting tight and waiting to see what happens rather than having to slash their prices by any substantial amount.

This means that any correction that will happen in the housing market is probably going to be slow and drawn out.

What remains the greatest concern for the health of the property market is debt. Currently the UK borrowers owe somewhere in the region of £1.3 trillion to lenders. This is double the figure of 5 years ago. Currently homeowners are borrowing £1bn per day, despite a slowdown in lending. This figure includes mortgages, which typically is counted as ‘good debt’, as it is secured against property. But there is talk that UK property market is overvalued. Much of this debt is also ‘bad debt’; unsecured borrowing on overdrafts, personal loans, credit cards and hire purchase.

Whilst it has become normal in the UK to take out cheap loans to finance everything from weddings to cars, borrowers are now finding that rising costs of living are making those loan repayments a burden too far.

There are now increasing signs that more and more borrowers are struggling to meet their monthly repayments. Increases in inflation levels could leave many borrowers in serious trouble, despite last week’s rate cut.

New research released by the Council for Mortgage Lenders shows that affordability still remains one of the key concerns of the property market with first time buyer expecting to borrow roughly 3.38 times their salary on the value of a mortgage.

However affordability is not only an issue for first time buyers with home movers also finding the current housing market very expensive. Typically the average home mover will have to borrow 3.03 times their salary in order to buy a new property. The average home owner is now paying 17.2% of their income on servicing their home loan. This is the highest level it has been in 15 years.

The director general of the CML, Michael Coogen has stated that while affordability still remains a problem for many borrowers their may be a some relief yet to come. It is widely expected that interest rates will be cut by the Bank of England in the coming months. This cut will help many borrowers who are finding their monthly mortgage repayments increasingly expensive.

The market has become very segmented in the wake of the financial crisis to hit the credit markets. Mainstream borrowers can expect fixed rate deals to become cheaper as interest rates are cut, however the bad credit sector of the market will see their loan options restricted as lenders’ tighten lending criteria as well as reduce the amount they are willing to lend.

In the coming months lenders will increasingly price mortgages according to risk, this means that borrowers with poor credit histories will find it increasingly difficult to secure a cheap loan or even one at a higher rate.

With the current situation in the financial markets it looks like there are going to be some pretty rough times ahead. There has been a serious loss of liquidity in the financial markets which means that banks are finding it more difficult to get access to the funds that they need in order to offer mortgages and cheap loans. What this means is that the price of credit will probably go up, and this is expected to show through on mortgage rates which will probably rise. Abbey has been the first high street bank to raise its main home loan products.

One of the suggestions that is being put forward by financial advisors is for those who are in a position to do so to overpay as much of their mortgage as possible. This will allow customers to reduce their exposure to increased interest rates. Studies show that a customer with an average mortgage of £100,000 who makes a £5,000 lump sum payment can reduce the amount of interest repaid over 25 years by £24,000. On the same mortgage, at a rate of 7.75%, a customer making overpayments of £200 a month would reduce the amount of interest paid by £66,047 over the life of the loan.

You should check the terms of your home loan with your lender but the vast majority of mortgages in the UK do allow a certain amount of over payments to be made without incurring any charges, so if you are in a position to do so, making overpayments pays off in the long run.

Don’t be fooled into thinking that the Bank of England’s rumoured rate drop plan will affect mortgage rates. Whilst there is talk that the Bank will drop the base rate from 5.25% to 5% in the near future, this is unlikely to affect the currently high inter-bank lending rate, which is responsible for the rate offered to you by your loan lender.

These days everyone buys on credit. Britain’s love affair with credit cards and cheap loans has driven so many of us into deep debt over the past decade. So if you are thinking of getting a new credit card it is important to choose the right one for you since there are so many options available. You have to think about the type of person you are before you take out a card.

OK, I know I sound crazy, but seriously there are so many options out there you really need to get one that suits your needs otherwise you might find yourself building up debt.

Think of it like this; if you are the type of person who always pays your bills on time but needs a card to buy things online then it doesn’t really matter what the interest rate is since you will be expecting to always pay your bill off before the end of the month. Look for a card that has no annual fee or one that offers some sort of bonus for using it. This way you will really only gain from having a card, however make sure you always pay your bill on time since your interest rate might be high.

On the other hand if you are the type of person who doesn’t always pay on time then look for cards with enticing offers. The best offers out there include zero percent interest on balance transfers and purchases as well as giving you up to 59 days between buying something and having to make a payment.   These sort of deals can be good for people wanting to move loan debts currently earning high interest. A loan can be cleared this way and paid quicker as more money is going on the capital and none on interest.

Many credit card holders who are customers of Natwest have accused the bank of introducing stealth charges without giving its customers much notice.

Natwest, the second largest provider of credit cards in the UK, has changed how its reward scheme works for its air miles reward programme, YourPoints.

Part of the change in the way the card worked now means that cardholders have a £3 charge automatically charged to their account unless they spend more than £1000 on the card in a month.

While the scheme for the card was introduced last June the additional charge was added in December. Many customers have claimed that this charge was added by ‘stealth’.

Natwest has denied that the charges are stealth, claiming that the charges were flagged up in the customer information pack which they received when they signed.

Natwest has claimed that the charges were not introduced by the bank for six months because it wanted customers to familiarise themselves. However many customers have claimed that Natwest was being very crafty with the card by introducing the extra bill around Christmas. This meant that many people were going to be busy with all their deals and possibly miss out on the fact that an extra charge had been introduced.

A Natwest spokesperson has stated that: “We refute any claims suggesting that we have not informed customers appropriately. All customers who are receiving a £3 monthly fee have previously been advised of this fee and have actively chosen to opt-in to the YourPoints scheme.”

Customers of all credit cards would be advised to check the small print and to beware of using cards as form of borrowing money longterm. Cards not paid off monthly attract heavy charges in the long term and borrowers would be advised to move the debt to a cheap personal loan.

Banks are continuing to raise interest rates on personal loans by as much as 4%. Moves by the banks to increase loan rates lend more evidence to the claim that the credit crunch has finally begun to hit consumers.

So far nine major lenders have increased charges on new loans in the past fortnight. The decision by banks to increase their rates is a direct reflection of the fact that borrowing for banks on the international money market has gone up considerably in the past two months.

However not all the rises can be blamed on the credit crunch and it would appear that many of the banks that have increased their charges are also attempting to increase their profit margins on loans. This reflects the more cautious approach that banks are now taking to lending in the wake of the sub-prime mortgage crises that hit the US housing market.

Home loans have also followed a similar path with some rates beginning to go up as well as the introduction of much tighter lending criteria.

Many banks are trying to now make up for the massive losses that they have sustained over the past few months and most banks are now reluctant to lend to each other. This inability of banks to secure a ready source of money has led to interest rates being driven up among inter-bank lending. This increasing in borrower costs that banks have sustained is now being passed onto lenders.

However, all is not bleak for consumers seeking cheap loans. There are still bargains on the market for those prepared to shop around, especially for homeowners with good credit records.

Very few of us can claim to have made no financial blunders in our lives. Sometimes the temptation to spend some of your savings on a needless treat can be too great, or we might fail to invest our money smartly, instead leaving it gathering dust in our current accounts with little prospects of gaining much interest. Below are highlighted some of the biggest and most common mistakes you can make with your money.

Many people set some money aside in case of a rainy day but even here you have to be smart in order to avoid losing out on possible financial gains. A good place to keep your savings is in a tax-free shelter such as Isa. In an Isa you can shelter £3,000 from the 20% savings tax that the government slaps on it.

Another mistake people make is in taking the first loan offered to them either on the forecourt or by their bank. Rarely are the big banks the place to find a cheap loan and forecourt finance frequently involves APR figures usually reserved for high cost store cards. The answer here is to shop around. Plenty of websites offer advice on current market rates on loans. Choosing wisely could save you hundreds of pounds.

Thousands of people still fail to plan effectively and efficiently enough to minimise the effects of inheritance tax. The best way to make sure your money goes where you want it to after you die is to make a will. If you fail to make a will, than the first £125,000 will go directly to your spouse along with all your possessions. The rest of what you own will be shared equally between your children.

Interest rates on some personal loans have increased by as much as 4% as the credit crisis feeds through the banking industry and hits consumers.

Charges on new loans have gone up for nine major lenders in the past month. One lender, Bradford and Bingley has put up charges by 4% for loans between £2000 and £2,950. Rates for this type of loan now stand at a whopping 17.9%. This rate is currently more than 3 times the Bank of England base rate which is currently at 5.5%.

The reason for such large rises in loan interest rates is that the cost of borrowing between banks has gone up by so much recently.

The high cost of inter-bank lending is not the only reason for rate rises however. Many banks are also trying to increase profit margins in the wake of the increasing loan default rates. This reflects a more cautious approach banks are taking to lending as they try and decrease risk as well as increase profit margins.

This increase in interest rates for personal loans is also being seen in the mortgage market, with home loans rates rising in recent weeks as well as banks increasing tighter restrictions on the amount that they are willing to lend as well as who they are will to lend to.

B&B has also increased their rates on loans between £5,000 and £7,450 by up to 3.2% bring the total interest rate to 9.9%.

However, the news is not all bad for borrowers; cheap loans are still to be found on the market. Borrowers are advised to shop around and not just accept the high rate offered by their bank.