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.
Budget 2015: George Osborne is set to get tough with further cuts in public spending
Bargain Hunter: Our exclusive deal cuts the cost of buying foreign currency by 20 per cent
Simon Read: 'Taylor Swift tickets purchased on Viagogo were cancelled hours before the concert'
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
Bank-beating exchange rates on your international payments
- 1 BBC told new political editor must be 'impartial' with Nick Robinson reportedly stepping down
- 2 Number of young homeless people in Britain is 'more than three times the official figures'
- 3 The map showing the most dangerous tourist destinations in Europe, according to the Foreign Office
- 4 The biggest first date turnoff has been revealed
- 5 German man found living with 300 rats in tiny apartment
More Britons believe that multiculturalism makes the country worse - not better, says poll
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
iJobs Money & Business
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...
Day In a Page
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
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.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
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 six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
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.
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.
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.
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 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.