All About Loans Weblog

More and more people are suffering from debt problems. Credit is becoming more and more difficult to come by and many people on fixed rate mortgages are going to come to face much higher mortgage repayments in the coming year.

Increased debt concerns are a growing problem for UK households and it is now feared that with the increase in debt there will be a corresponding rise in mental health issues.

It has been revealed that debt can trigger anxiety and stress, depression, self-harm and even suicidal thoughts.

Debt can easily spiral out of control, as it is as easy as missing just one payment and this can eventually lead to letters from debt collectors demanding that you pay back the entire loan. These letters are likely to be anxiety provoking as the letters become more and more intimidating. The combination of debt and creditor demands can lead to a massive build up of stress for many borrowers.

Lenders need to start being more aware of the anxiety that they can invoke in borrowers when constantly harassing them over repayments.

Experts are becoming increasingly aware of the mental health problems bad debt is creating and a code is beginning to be developed in order to protect customers with mental health issues.

The Money Advice Liaison Group (MALG) has published a ‘Debt management and debt collection in relation to people with mental health issues’. These guidelines are for money advisers, lenders and debt collectors on how to be more aware of mental health issues.

However, lenders are unlikely to be sympathetic to those who play the ‘mental health’ card as an excuse to not repay personal loans. Whilst this measure is of real help to those with genuine suffering, it is unlikely to allow bad debt clients to avoid their responsibilities.

New figures show that the number of people declared insolvent is still going down. This is despite all the new fees banks have been introducing to try and rake back profit lost from repaid overdraft fees. And despite the raising of interest rates on loans and mortgages which have made it increasingly difficult to pay back loans. For the last six months the number of people declared insolvent has been decreasing, according to Government figures.

Although the drop in insolvencies was not expected by the experts they are still warning that the worst may still be yet to come.

Britons borrow money like no other country in Europe and while this is good for retailers, the existing mountain of debt as well as the recent interest rates rises means more and more of us could still be at risk of insolvency.

Currently in Britain it is estimated that 8.2 million adults are in serious debt while a further 2.1 million of us are struggling with repayments. So if you ever feel like you’re the only one suffering there is no need to feel alone. Do not be scared to approach your lender for advice if you feel your debt is getting out of control. Early action is the best way of avoiding a difficult financial situation in the future.

18% of adults in the UK own more than £10 thousand in unsecured debt, such as car loans, credit cards and hire purchase. That is equivalent to 8.2 million adults and the number is only going up. Men were at more risk of building up large debt with 18% of men reporting debt of £10k compared with 15% of women.

Debt campaigners have accused Northern Rock of being too hard on customers who fall into loan arrears and called for the bank to soften its line on bad debt customers, as the bank was accused of being one of the most aggressive banks on the high-street for repossessing borrowers’ homes.

Despite the fact that Northern Rock now owes the tax payer almost £35bn the bank still refuses to negotiate with borrows who are unable to make their monthly repayments. The bank often moves very quickly to repossess properties rather than to allow arrears to build up.

Feedback from debt counsellors to the Consumer Credit Counselling Service has shown that the bank was one of the most aggressive lenders when it came to dealing with its customers who were finding it difficult to pay their bills.

Northern Rock has for often placed a heavy emphasis on the strength of its loan book as well as its low arrears figures. The industry average for arrears is 0.8% of customers, however in the case of Northern Rock that figure drops to 0.4%.

The CCS has claimed that Northern Rock as a rule refuses to accept debt management plans and routinely rejects individual voluntary arrangement (IVA) schemes, which are five year repayment plans.

Instead of offering these debt plans the bank instead offers customers further loans to repay the debts over a longer period, however the bank has denied that this is its policy.

The CCCS chairman, Malcolm Hurlston has called Northern Rock “one of the least charitable on the high street.” However, as a business and not a charity, perhaps at last Northern Rock is offering its shareholders a less risky future.

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.

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.

Thousands of us are facing the risk of being unable to meet our mortgage repayments in the coming months as the recent increases in interest rates finally start to be felt.

There have been five rate rises over the past twelve months and although the base rate dropped in December, the prior rate rises have added roughly £135 a month to the average mortgage in the London and the South East, where mortgages are on average £180,000.

The problem for many of us is that we are not only trying to repay our mortgages but also meet loan repayments and credit card bills, which have also seen interest rate rises.

Last year saw the highest number of house repossessions by lenders since 1999 with 27,100 of us seeing our house being repossessed. That’s a 21% rise on the level of 2006, and could be a warning for what’s to be expected in the next few months.

Michael Coogan, CML director general, said: “The number of repossessions is likely to be higher in 2008 as a result of wider issues in the economy and the mortgage funding markets.”

The reason so many of us have been caught out is because interest rates are far higher than many of us expected when we took out the loans. Financial experts are advising anyone who finds that they are struggling to make monthly repayments to not wait and see what happens, but rather act now before it is too late to do anything.

The spring is expected to send many of us who borrowed low rate fixed loan deals between 2002 and 2005 into financial difficulty as many of the deals are expected to expire shortly.

There has never been a better time to find a credit card with a cash back deal as credit card companies up the stakes in their war for new customers but are we, the consumer, really getting a better deal.

It is estimated now that as much as one in every ten credit cards comes with a special offer with the average cash-back from one of these offers amounting to 0.72%.

So on average for every £1000 you spend on your credit card you can expect to get an average of £7.20 back on your cash-back offer.

One card recently launched that smashes all cash-back offers is Abbey’s new cash-back credit card which offers 5% cash back but this only stands for the first £1000 spent on the card and only if they money is spent in a major supermarket. Another deal out there turning heads is Capital One’s offer of 4% and the American Express offer of 3%.

Cash-back offers are often cited by credit card companies as a way of rewarding customer loyalty. However with an average offer of just 0.72% that is not much of a reward.

If you choose a cash-back card but fail to pay it back every month you might end up completely removing any reward you would have got through the higher cost of interest repayments, making it one of the most expensive ways of borrowing money outside of a pay day loan.

Many of the cash-back deal also only last for a short period of time which means that after the time period is up you might end up with a credit card that has a very uncompetitive APR as well as balance fees. If this is your situation, better to take out a cheap consolidation loan to clear the total and start afresh by paying off your card balance every month.

As mortgage lenders start to hike-up interest rates for risky borrowers, finding a mainstream mortgage may be the easier option.

Many borrowers who have poor credit histories are being advised to switch to a mainstream mortgage if they can in order to avoid paying the extremely high rates of interest.

The fixed rates of sub prime home loans have been rising at an extraordinary level over the past few weeks as the number of defaults of sub-prime borrowers in the US begin to impact on the lending market at home.

British lender Northern Rock has put up rates on its sub-prime fixed rate offers by 1.25% recently. A number of other lenders have followed a similar path. Sub-prime tracker products are increasingly difficult to find as more and more lenders are removing these products from the market.

If you currently have a sub-prime deal and it is coming to an end soon you should seriously investigate the possibility of switching to a mainstream loan deal. You may be eligible for a mainstream deal if you have been consistently paying off your mortgage each month in full and on time. By switching you will be able to take advantage of lower interest rates and possibly save thousands over the lifetime of the mortgage.

Fixed rate mortgages are popular among people who have previously had a sum-prime mortgage as the certainty of the fixed rate makes it easier to manage your finances even if it might be more expensive than a tracker.

£50m has been paid out by us in missed payment fines in the first half of this year. This is despite the fact that many card companies have dramatically cut their penalty charges.

It is estimated that roughly 4.1m monthly card payments were missed since the beginning of the year, coming to a combined total value of £694,509 per month.

Currently the average cost for missing a payment stands at around £12, which is just over half the average £20 which used to be charged. The reason for a decrease in the charge is because of an Office of Fair Trading investigation which ruled that the charges were too high.

The combined total of the payment fines highlights the fact that many of us are struggling to repay our loans and the high interest rates are only going to make matters worse.

A £12 fine on top of your debt as well as the growing pile of interest will combine to make it more and more difficult to repay the loan and as time goes by the pressure will only continue to grow.

The effect of missing a payment can have serious repercussions on your credit rating and may last as long as 3 years on your credit report. Sometimes a poor credit rating will mean that you charged more interest and get turned down when you apply for personal loans or mortgages.

Those of us who are most likely to miss a payment are the 25 to 34 year olds. Roughly 13% in that age group have missed a payment in the past 6 months.

More and more young people are struggling to understand the basic of personal finance, according to new government research. This leaves them at risk of ruining their credit rating early on and jeopardising their ability to secure loans in the future.

A recent government poll recently suggested that a culture of secrecy seems to have developed among 16 to 21 year-olds who admitted that they would not tell their parents they were overdrawn and with 1 in 5 saying they wouldn’t even let their parents know that they had a credit card.

This lack of knowledge on young people’s side could be down to parents making money matters a taboo. Most parents admit that they do not feel comfortable discussing money matters with their children and 22% thought that their children did not consider money matters to be of any importance.

However it is not only young people with the knowledge gaps and if you don’t know how to manage your finances efficiently than you risk not making the best decisions with your money and getting into financial difficulties. If you have some extra money sitting in your current account why not put it in a saving account for instance? Also a lot of us don’t know when getting another credit card is not to solution to our financial woes and when taking out a debt consolidation loan is better than repaying the minimum on high-interest cards.

The DfES has a campaign called Talking Money which is aimed at encouraging families to be more open about their financial matters as the family is your best financial safety net.