Borrowers have never had it so bad, so time to review your choices
Need a loan but put off by exorbitant rates? Chiara Cavaglieri maps out the options for how to get your hands on the cash
Sunday 12 April 2009
Anyone attempting to secure a personal loan will find it has become a difficult and expensive business. Lenders are still hesitant to loosen their criteria, and even people with impeccable credit ratings are struggling.
The credit drought has led to the Office of Fair Trading planning to investigate loans. "A lot of lenders are protecting their bucks and are reluctant to lend to new borrowers," says Olivier Beau de Loménie, managing director of the loan comparison site TheLendingWizard.com. Even those that do manage to obtain a loan are faced with rising costs; in the past 12 months, the average rate for a personal loan of £1,000 has risen to 19.8 per cent, up by 1.9 per cent, according to comparison site Moneyfacts. With such unfavourable conditions, where can consumers turn for affordable credit?
Use a credit card
Smaller personal loans in particular have risen notably in the space of a year, with loans of £5,000 seeing the biggest rise of 2 per cent. Although the average credit card rate has increased from 16.9 per cent last year to 17.7 per cent, anyone looking to borrow a smaller amount may well find it cheaper to use a credit card. The Barclaycard Simplicity Visa, for example, charges just 6.8 per cent.
Borrowers may want to take advantage of credit cards with introductory bonuses. "Customers looking for short-term borrowing could consider a card offering a 0 per cent introductory purchase deal. As long as you repay the debt within the term of the deal you will be charged no interest at all," says Michelle Slade, an adviser at Moneyfacts. The longest deals at present are Marks & Spencer Money MasterCard, offering 0 per cent for 10 months, and Halifax All in One MasterCard, which offers 0 per cent for nine months.
Zopa provides an online financial exchange service bringing borrowers and lenders together, without the need for banks. Potential borrowers are placed into one of five categories – A*, A, B, C or Young, with A*s posing the least risk of defaulting and therefore gaining access to the best rates. Unlike banks, Zopa takes into account a wide set of circumstances to assess credit worthiness, including assets such as a collection of cars or even an eBay rating. Also, with fewer overheads, Zopa lenders offer better rates: borrowers in the A* market are currently enjoying an average rate of 8.1 per cent on loans of £5,000 over three years. "At the moment, we're undercutting banks radically because of their reluctance to lend," says Martin Campbell of Zopa. Borrowers are able to borrow between £1,000 and £15,000, which can be repaid over three or five years, although there are no early repayment charges. There is also a flat fee of £118.50 for all loans.
More than 300 independent credit unions are members of the Association of British Credit Unions Limited. With credit unions, individuals who share a common bond, often dictated by their job or where they live, come together to save and borrow money with each other. Originally, anyone looking to borrow would need to be an established member of the credit union before being able to apply for a loan. However, as credit unions have developed, borrowing has become a more immediate option for members.
"Traditionally, credit unions required you to save for a while before they would lend to you but, as they've grown, some of them allow you to join as a member and get a loan relatively quickly," says Mark Lyonette, the association's chief executive. Credit unions on average charge 12.7 per cent. All credit union loans include life insurance for the loan as standard.
Go to your mortgage lender
Homeowners can choose to release equity from their properties by borrowing additional funds through their mortgage lenders. "Further advances are still typically lower than personal loan rates and are very much akin to a standard mortgage rate," says David Hollingworth of mortgage brokers London & Country. However, because mortgages are paid over a longer period of time, they can end up costing more over the lifetime of the debt.
Alternatively, homeowners can remortgage through a different lender and get extra funds by applying for a bigger loan than needed. As long as there are no early repayment charges, remortgaging is a good option for those with enough equity in their properties as they can scan the whole of the market and secure a better rate.
Those on a flexible or offset mortgage may also be able to borrow back money they have put into the mortgage. Northern Rock, for example, allows customers to borrow back some or all of any overpayments they have made on their flexible fixed mortgage at the rate of their home-loan deal.
Q&A: What’s the best way to invest for our baby?
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
Simon Read: 'Seven Families campaign offers an escape from financial and emotional distress'
After the election: What will Britain's financial future look like on 8 May?
General Election 2015: How you vote next week could affect your finances
- 2 The man who filmed the Freddie Gray video has been arrested at gunpoint
- 3 How the language you speak changes your view of the world
- 4 The top 50 cities for young people to live in
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: SNP and its activists 'openly racist' towards the English, Farage says
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...
£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...
£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...
£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...
Day In a Page
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park