The thaw in loan market will not benefit everyone
Lenders are offering better rates of interest, but only if you want to borrow a large amount
Sunday 08 January 2012
Personal loan rates have now fallen to levels not seen since before the credit crunch according to financial information service Moneyfacts.
M&S Money is offering £10,000 at a rate of just 6 per cent over five years and that isn't the only good deal out there as providers move their rates lower in a mini price war.
However, we are not in reality returning to some sort of pre-2007 where personal loans were virtually as cheap as mortgages. Rates diverge markedly at different borrowed amounts and periods of loans.
Borrow a large sum – over £7,500 – and pay back over three, four and five years and rates are low but look at smaller amounts and over shorter periods and the interest charged escalates. Expect to pay at least 18.9 per cent and most deals on offer are for existing customers only.
There has long been an anomaly that shorter-term borrowing attracts higher interest than longer term – it's a combination of having to absorb the costs of setting up the loan and the lender's concern that individuals that need to borrow relatively small amounts over short periods are probably maxed out on their credit card or authorised overdraft facility, a more obvious source of short-term lending.
Try to borrow £1,000 over six months and there is only one mainstream lender in the market, Bank of Ireland which will lend at a rate of 29.6 per cent including an arrangement fee of £65. We've never had such a paucity of choice and high rates – relative to larger loans – in this space.
Now banks will say they cater for this through overdrafts and credit cards but there is a definite need as exposed by the shocking Shelter report last week that a million of us are using a payday loan at charges of up to 4,000 per cent to pay our mortgage or rent.
At the other end of the loan scale, the Bank of England has said, as predicted in this newspaper, that there will be more higher loan to value mortgages available in 2012. But lenders will be tightening criteria so a smaller percentage of borrowers will get the choice cuts.
There have always been credit have and have-nots in our society, but it's never felt as acute a situation as it does today.
Thank you EU
So, who says the EU doesn't do anything for us Britons? From this week you should notice many of your electronic payments going into and out of your current, savings or credit card account at a more rapid rate. An EU directive has come into force forcing banks and other financial institutions to deal with electronic payments within 24 hours.
This means that instead of using Bacs – which can take three days – a faster payment system will have to be used which should be almost instantaneous. No more should you have that frustrating wait for money to transfer into your account and be told by your branch if you want it to move any faster you'll have to arrange and pay for a Chaps transfer.
For example, if you pay your credit card online or by telephone banking then it will be credited that day. If you pay a bill by the same methods then this will also leave your account that day and arrive the same day at its destination. If you go into a bank branch and pay off a bill with cash that will now clear that same day. In the past some banks would hold onto this cash for three days making money in interest themselves. Standing orders will also move in the blink of an eye.
The good news is that these changes should help avoid penalties for late payments of credit card bills and should reduce the number of overdraft charges.
But there is one payment method noticeable by its absence. The good old cheque. It can still take up to 10 days to clear a cheque – more usually three or five. When the overhaul of the cheque system promised by the UK banking system – after the furore of the proposed phasing out – the ridiculous and seemingly arbitrary number of days payments take to clear should be a priority. Maybe we could have an EU directive for that rather than wait for the banks?
Not such a great payday
On payday loan companies again, apparently one firm is offering Facebook users an incentive to leave tributes on its page. The best tribute attracts a whole £25 payout – equivalent to one week interest on a £200 loan.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Liam Neeson's Downton dreams
Thriller is set in the secret world of British espionage
Bomber jacket worn by Mary Berry sells out within an hour
- 1 Scottish independence results live - The reunited kingdom: Scotland gives a clear 'No' in historic referendum
- 2 iOS 8 is full of shiny new features - but it's terrible news for app developers
- 3 Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
- 4 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 5 Hitler’s former food taster reveals the horrors of the Wolf’s Lair
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Scottish independence: The Queen breaks silence on referendum debate – as think tank warns of £14bn black hole if Scotland votes Yes
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...
Up to £90,000 + benefits: Saxton Leigh: Credit Risk Audit Manager required to ...
Day In a Page
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000