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.

PROMOTED VIDEO
Arts and Entertainment
glastonbury
News
i100
Arts and Entertainment
Shock of the news: Jake Gyllenhaal in ‘Nightcrawler’
filmReview: Gyllenhaal, in one of his finest performances, is funny, engaging and sinister all at once
Arts and Entertainment
Shelley Duvall stars in Stanley Kubrick's The Shining
filmCritic Kaleem Aftab picks his favourites for Halloween
News
people
Arts and Entertainment
Kit Harington has been given a huge pay rise to extend his contract as Jon Snow in Game of Thrones
tv
Life and Style
Taste the difference: Nell Frizzell tucks into a fry-up in Jesse's cafe in east London
food + drinkHow a bike accident left one woman living in a distorted world in which spices smell of old socks and muesli tastes like pork fat
Sport
Luke Shaw’s performance in the derby will be key to how his Manchester United side get on
footballBeating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Life and Style
Google's doodle celebrating Halloween 2014
tech
Arts and Entertainment
Don’t send in the clowns: masks and make-up conceal true facial expressions, thwarting our instinct to read people’s minds through their faces, as seen in ‘It’
filmThis Halloween, we ask what makes Ouija boards, demon dolls, and evil clowns so frightening?
News
peopleFarage challenges 'liberally biased' comedians to 'call him a narcissist'
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

    Finance Assistant - Part time - 9 month FTC

    £20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

    Marketing Manager

    £40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

    Market Risk Manager - Investment Banking - Mandarin Speaker

    £45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...

    Compensation and Benefits Manager - Brentwood - Circa £60,000

    £60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

    Day In a Page

    The drugs revolution starts now as MPs agree its high time for change

    The drugs revolution starts now as MPs agree its high time for change

    Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
    The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

    Gotcha! The camera is turned on tabloid editors

    Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
    Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

    Fall of the Berlin Wall

    It was thanks to Gorbachev that this symbol of division fell
    Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

    What makes ouija boards and demon dolls scary?

    Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
    A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

    Rose Rouse's safari in modern Britain

    Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
    Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

    'My world of no smell and odd tastes'

    A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

    Matt Parker is proud of his square roots

    The "stand-up mathematician" is using comedy nights to preach maths to big audiences
    Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

    Paul Scholes column

    Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
    Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

    Frank Warren column

    Call me an old git, but I just can't see that there's a place for women’s boxing
    Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

    Adrian Heath's American dream...

    Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
    Simon Hart: Manchester City will rise again but they need to change their attitude

    Manchester City will rise again but they need to change their attitude

    Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
    Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

    A Syrian general speaks

    A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
    ‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

    ‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

    Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
    Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

    Fall of the Berlin Wall

    History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
    How to turn your mobile phone into easy money

    Turn your mobile phone into easy money

    There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes