With loans, the devil is always in the detail
Borrowing money? Read the small print, and don't be swayed by 'free' cash offers
Saturday 13 October 2007
The cost of taking out a personal loan has been on the rise over the past month, as the credit crisis has forced banks to raise their interest rates. But consumers were finally given some respite from the spiralling cost of borrowing this week, as Barclays bullishly slashed its rates, claiming its financial strength meant it was much better positioned than its competitors to weather the current crisis.
Rates on Barclays loans have been cut by as much as 0.6 percentage points, down from a typical APR of 7.4 per cent to 6.8 per cent. The bank is also promising to pay any difference between monthly repayments – plus an extra £1 per month – for those who take out one of its loans and then go on to find a cheaper deal elsewhere. It also says it will pay £50 to those who consolidate their debts with Barclays.
However, customers might be advised to take the bank's PR spin with a generous pinch of salt. Tim Moss, head of loans at Moneysupermarket.com, says: "There are still around six providers with better rates, so Barclays has some work to do live up to its own publicity. Also, the £50 incentive to swap your loan may be tempting, but I'd advise caution before taking the plunge. Check the small print on any current loan agreement for early settlement penalties, which could well be more than £50."
If you are trying to bag the free £50, it's worth remembering that you'll have to apply in writing, fill out a special form and supply a written offer of the better deal you found – all of which is designed to make it more trouble than it's worth.
All in all, the move seems less about offering the most competitive rate to customers and more about boosting their reputation by capitalising on the current uncertainty surrounding other institutions. Still, Barclays' rate cut remains a positive move in a market where overall rates are increasing.
Lisa Taylor, analyst at Moneyfacts.co.uk, says around nine providers have recently hiked interest rates and, on some borrowing brackets, by up to a whopping 4 per cent: "With increasing uncertainty in the financial markets, rising levels of bad debt and a year of interest-rate rises putting pressure on our disposable incomes, it comes as no surprise to see lenders increasing their lending margins in what has become a far more risky environment to do business," she says.
Generally speaking, experts advise caution for those shopping around for the best unsecured loan deals and not just at this time of uncertainty. When searching the market, bear in mind the impact how much you want to borrow might have; typically, the smaller the amount you wish to borrow, the higher the rate providers might levy.
"Stay away from looking at typical rates," advises Ms Taylor. "The big posters in the branch windows might grab your attention, but remain cynical."
When you see the "typical APR" on marketing material this means that while at least 66 per cent of those who are offered a loan will get that rate, more than a third of applicants will be offered a higher rate.
And if you don't like the rate you're offered, and decide to apply elsewhere, it's worth remembering that making multiple applications for credit will bring down your credit rating.
To minimise this damage, Mr Moss suggests a three-pronged approach: " Check your credit records first with one of the credit reference agencies, such as Equifax or Experian; it only costs a few pounds and will give you an idea of what loan providers see when they check your score," he says. "There could be old linked addresses on there which may bring your score down. Make sure the electoral roll is up to date in this respect; which might help clean up your records. Finally, don't employ a scatter-gun approach to getting credit and send off lots of applications simultaneously."
As well as the risk of losing out by chasing eye-catching typical APR offers, loan applicants should be aware of other caveats and conditions, which can include loans only being available to either new or existing customers of a provider. Other providers will demand that applicants are homeowners – even if the loan is unsecured.
One other factor to watch out for when choosing a personal loan is payment protection insurance, which is designed to cover the cost of repaying your debt in the event of being out of work having either had an accident, becoming seriously ill, or being unemployed involuntarily.
While providers have been forced to clean up their act in terms of selling this protection more carefully, consumers need to stay vigilant and avoid shelling out for cover they don't want.
If you do want payment protection insurance, then go to an independent provider – not the company your loan is with. Stand-alone protection policies from companies such as www.paymentcare.co.uk are often a much cheaper option.
When you're buying a policy, watch out for the myriad of clauses and caveats which could invalidate any claim. These might include pre-existing medical conditions or being self-employed.
For those thinking they might be in need of a cash injection from a personal loan, the advice is, don't delay. Experts maintain that the overall trend is for rates to continue to go up, and those providers coming out with aggressively priced products are likely to have finite tranches of cash available to offer loans at such competitive rates.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Presents unwrapped, turkey gobbled... it's time to relax
Simon Read: There may be trouble ahead for cohabiting couples who don’t make a will
You'll need £220,000 for a minimum wage in your retirement
Money Insider: Would £150 make you switch banks?
Bargain Hunter: Find the deals that have real value beneath the Black Friday hype
Gold-plated pensions – the key to retirement freedom?
- 1 Jennifer Lawrence scores first UK top 40 single with Hunger Games track 'The Hanging Tree'
- 2 Shia LaBeouf claims he was raped during #IAMSORRY art installation performance
- 3 'You should come to my house and eat cheeses with me': 4-year-old sends adorable love letter to girl at school
- 4 Scientists predict green energy revolution after incredible new graphene discoveries
- 5 Michael Buerk wishes he killed Jimmy Savile when he had the chance - by pushing him overboard a cruise ship
Obama: The only people with the right to object to immigration are Native Americans
Ukip says babies born to immigrants in the UK should be classed as migrants – which would include Nigel Farage’s own children
The young are the new poor: Sharp increase in number of under-25s living in poverty, while over-65s are better off than ever
Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by Ohio police
Ukip mocked after mistaking Westminster Cathedral – for a mosque
Plebgate: Andrew Mitchell’s reputation in tatters as judge rules he used the word ‘pleb’
iJobs Money & Business
Excellent Package: Austen Lloyd: EAST ANGLIA - SENIOR SOLICITOR LEVEL ROLE** -...
£Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...
£Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...
£90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...
Day In a Page
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
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
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
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
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
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