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

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.com

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.



Credit unions

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.

News
people'It can last and it's terrifying'
Sport
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
Sport
footballStriker has moved on loan for the remainder of the season
Sport
footballFeaturing Bart Simpson
PROMOTED VIDEO
New Articles
Olivia Colman topped the list of the 30 most influential females in broadcasting
tv
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
News
The five geckos were launched into space to find out about the effects of weightlessness on the creatures’ sex lives
i100
Sport
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
News
i100
Life and Style
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside
lifeDavid Sedaris: What I learnt from my fitness tracker about the world
Arts and Entertainment
Word master: Self holds up a copy of his novel ‘Umbrella’
booksUnlike 'talented mediocrity' George Orwell, you must approach this writer dictionary in hand
News
i100
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

    £40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

    Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

    £85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

    Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

    £40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

    SQL DBA/Developer

    £500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...

    Day In a Page

    'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

    'I’ll tell you what I would not serve - lamb and potatoes'

    US ambassador hits out at stodgy British food
    Radio Times female powerlist: A 'revolution' in TV gender roles

    A 'revolution' in TV gender roles

    Inside the Radio Times female powerlist
    Endgame: James Frey's literary treasure hunt

    James Frey's literary treasure hunt

    Riddling trilogy could net you $3m
    Fitbit: Because the tingle feels so good

    Fitbit: Because the tingle feels so good

    What David Sedaris learnt about the world from his fitness tracker
    Saudis risk new Muslim division with proposal to move Mohamed’s tomb

    Saudis risk new Muslim division with proposal to move Mohamed’s tomb

    Second-holiest site in Islam attracts millions of pilgrims each year
    Alexander Fury: The designer names to look for at fashion week this season

    The big names to look for this fashion week

    This week, designers begin to show their spring 2015 collections in New York
    Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

    'I like Orwell's writing as much as the next talented mediocrity'

    Will Self takes aim at Orwell's rules for writing plain English
    Meet Afghanistan's middle-class paint-ballers

    Meet Afghanistan's middle-class paint-ballers

    Toy guns proving a popular diversion in a country flooded with the real thing
    Al Pacino wows Venice

    Al Pacino wows Venice

    Ham among the brilliance as actor premieres two films at festival
    Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

    Neil Lawson Baker interview

    ‘I’ve gained so much from art. It’s only right to give something back’.
    The other Mugabe who is lining up for the Zimbabwean presidency

    The other Mugabe who is lining up for the Zimbabwean presidency

    Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
    The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

    The model for a gadget launch

    Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
    Alice Roberts: She's done pretty well, for a boffin without a beard

    She's done pretty well, for a boffin without a beard

    Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
    Get well soon, Joan Rivers - an inspiration, whether she likes it or not

    Get well soon, Joan Rivers

    She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
    Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

    A fresh take on an old foe

    Doctor Who Into the Dalek more than compensated for last week's nonsensical offering