Archives for Loans

The Ins And Outs of a Secured Loan

If you are thinking about taking out a secured loan it is important to make sure that you have a clear understanding of exactly what is involved. Secured loans have a number of advantages and disadvantages and whether or not they are the right product for you will depend on your circumstances.

If you do decide to opt for this kind of borrowing then you can compare secured loans by using a comparison website to help you determine which lender and product best meet your needs.

How Does a Secured Loan Work?

You can only get a secured loan if you have some kind of asset with equity in it, usually your home, that can act as collateral for the loan. Lenders like secured loans as they are less risky for them.

When you take out a secured loan you agree with the lender that in the event of you defaulting on repayments they can legally take possession of the asset that you have used to secure the loan.

What Are the Benefits of a Secured Loan?

Secured loans are usually for large sums of money and are repayable over a long term. This can make them beneficial to those looking to fund major home improvements or big purchases.

Because the lender has the security of your home if you do not meet the loan repayments, a secured loan can be easier to obtain than alternative products. This means that they can be useful for those who are self-employed or who have had a problem with their credit history in the past.

What Are the Disadvantages?

The main disadvantage to a secured loan is that your home is at risk if you do not keep up repayments. As a result, it is important to ensure that you can comply with the terms of the loan both now and in the future.

Are There Any Alternatives?

There are alternative financial products available if you are looking to take out a loan. An unsecured loan is not backed by any assets so can be a less risky option. Failure to repay will still have an impact on your credit rating, however.

If you are looking for a loan to cope with a cashflow difficulty then a payday loan may be an option. However, these loans are only suitable for short-term borrowing if you need a small amount.

When you decide to take out a loan it is important to make sure that the product that you opt for is the most appropriate for you. Whichever type of loan you are interested in, it is always a good idea to compare the products offered by different lenders so that you ensure that you get the best deal available.

Secured Loans – UK Market Still Active

Secured loans in the UK ended up with a pretty bad reputation after all the financial fuss of ’07 kicked off.

There is no doubt the secured loan lending practices of the past were just as bad as some of the crazy mortgage offers around at the time with up to 125% of the value of your home being available to borrow.

Much like the banks, when the easy money stopped flowing and the industry started to collapse the secured loan companies couldn’t get funding and many of them turned to dust.

By 2009 14 lenders had left the market leaving only about 3 still operating.

http://www.thisismoney.co.uk/credit-and-loans/loans/article.html?in_article_id=485645&in_page_id=53937

Despite demand for debt consolidation going up, the money just wasn’t there to lend.

Like mortgage companies in the UK the secured loan providers had to get rid of risk by tightening criteria and restricting ‘loan-to-values’ of secured loans.

By late 2010 it was observed that demand for secured loans was up and consumer confidence had improved.

http://www.mortgagesolutions.co.uk/mortgage-solutions/news/1734230/confidence-returns-secured-loan-market

2011 is well underway and the options for borrowers are continuing to improve with cheap rates available that beat many unsecured loans.

Moneysupermarket have always had access to the some pretty good UK loan deals, including the most competitive secured loan offer in the market, for as long as I can remember and they still do with a 6.7% rate from Central Capital > See here <.

Loan-to-values are lower than they were but it is now possible to borrow up to 85% of the value of your home (including other secured debts) and by spreading payments over a longer term they can make other short term debts more manageable.

Of course if a debt lasts longer, more interest could be charged over time so a secured loan could cost more in the long run but could still be a more affordable way to get back in control of debt.

For example, credit card debt can last for a very long time if only the minimum amount is repaid.

This really good credit card calculator: http://www.whatsthecost.com/creditCard.aspx shows that a £10,000 credit card debt on a rate of 17.9%  paying a minimum amount of 2% will take 64 years to pay back and cost nearly £27,000 in interest!!

A £10,000 secured loan at a rate of 6.7% could be repaid in 5 years for less than £200 per month and the total interest charged would be less then £2000.

Or, £10,000 at 6.7% over 25 years would cost less than £68 per month but the total interest over 25 years shoots up to just over £10,000.

Still far better than just paying the minimum on a credit card!

Not everyone will qualify for the lowest rate but other rates are available depending on individual circumstances.

In short, a secured loan is a much better option that a credit card when it comes to long term borrowing.

Credit cards are evil and should only be used for emergencies or the whole balance should be cleared each month.

If a secured loan is used to consolidate credit card debt the best course of action is to pay off the card, cut it up and close the account.

Another alternative to a secured loan is a ‘further advance’ from a mortgage lender which is essentially a ‘top up’ on an existing mortgage and with mortgage rates so low, it could work out even cheaper than a secured loan.

Payday Loans – Friend or Foe?

I run a personal finance website and on this site I have affiliate programs and also direct access enquiry forms.

An affiliate program allows me to display links to other websites and earn commission when someone clicks or applies.

Like this: Virgin Credit Card – 0% for 16 months 2.98% fee (typical 16.6% APR)

The direct access enquiry forms send enquiries direct to qualified and waiting advisers.

In the past there were virtually unlimited marketing budgets in the finance sector and there were an abundant supply of affiliate programs for loan products.

Now there are very few.

An emerging loan market in the UK does however seem to be advertising everywhere and marketing their offerings through affiliate links.

These are Payday loans. Loans designed to give you emergency cash until you are paid.

They are not designed for long term borrowing. The interest rates are very high (see Silly Apr).

The reason the interest rates are high is so the lender can cover their costs and make the charges even for everyone.

They could charge a fixed fee but that wouldn’t be fair on people only borrowing a little bit.

If the rate was low and the loan was paid off in under a month they wouldn’t make any money.

But, if the loan is not repaid in a month or two months or six…. The costs are high.

I can see a place for this type of lending because there probably are some people who would have no other option.

However, people who have no other option because they are already stretched could find themselves adding to the problem.

Because I am of the mind that a lot of people already in difficulty will be looking at these products I have so far chosen not to advertise them very prominently.

I know an elderly couple who are struggling to clear an emergency loan and a single mother of two who got into some difficulty with one.

I would be interested in peoples opinions?

Are they a necessary evil or are they just going to add to the already mounting public debt?

Loan Payment Protection Insurance

It’s been a while since I’ve written anything but this had to be said! A lot more information is being made available regarding loan payment protection and the cost to the borrower and the benefits of shopping around for prices.

I recently looked at the figures and found some staggering results.

One lender quoted for a £10,000 loan over 7 years, repayments of £158 without loan protection or £213 with protection.

That’s £55 per month just for the protection.

Whereas, loan repayment protection insurance from an independant provider can cost as little as £2.50 per month.

Yes, it’s true.

http://www.antinsurance.co.uk will cover repayments of £160 for up to 12 months for only £4.

£4 covers the repayments for 12 months and provides Accident, Sickness and Unemployment cover.

If you’re self employed, it’s not worth getting unemployment cover because it will only kick in once the company is in the hands of the receivers and you’ve signed on.

So for a self employed person taking out Accident and Sickness cover to meet the loan repayments for 6 months, the price quoted online today was only £2.50 per month.

£4 per months gives 12 months of repayments and Unemployment cover as well.

Do the maths.

4/55 x 100 = 7.3%

That’s comparable loan repayment protection insurance for less than 10% of the cost quoted by the lender.

£4 x 12 = £48 per year

Compared to:

£55 x 12 = £660.

What would you do with that extra £612??

http://www.paymentcare.co.uk/ also provide a range of protection policies including life cover and mortgage repayment protection.

Secured Loan Arrangement Fees

Have you been shopping around for a secured loan and been quoted what you think is an unnecessarily high fee for arranging the loan?

The secured loan market has grown in recent years and as a result there are a lot of companies now providing loans or brokering loans.

As with any industry with a lot of activity there are likely to be a few companies charging excessive fees but in some cases the fees are understandable and can be broken down.

Secured loans are subject to arrangement fees much like mortgages. A valuation must be made of the property that is going to be used as security.

This needs to be done to make sure an applicant has enough equity in the property, either now or in the future, to cover the cost of repaying the loan. Independent valuers are used who need to be paid for their services.

Part of the secured loan arrangement fee is used to cover the cost of administration. The lender is required to make sure all of the necessary paperwork is in order. Some cases require more administration than others and when this happens a slightly higher fee is often charged.

If an applicant has plenty of equity, a clean credit rating and a good income much less administration is required and the loan can often be processed much more quickly.

If an applicant is required to provide extra proof of income or address, i.e. bank statements or utility bills, then more administration is required by the lender to verify the information.

It is quite normal for people with a poor credit history to pay a higher arrangement fee for a secured loan due to the increased amount of work required to process the paperwork and obtain the necessary information to satisfy a lenders criteria.

If you think the fee you have been quoted is excessive, the first thing to do would be to ask the lender or broker what the fee is for and what it covers.

If you are not happy with the fee the only other option would be to get a second opinion.

The only problem with getting lots of different quotes is that it could mean lots of credit searches against your name. This can have an adverse affect on your credit rating so multiple applications are not advisable.

 

ZenLoans - Secured Loans

  

A Truly Nobel Gesture

As you may or may not know Muhammad Yunus and his Grameen Bank was awarded the 2006 Nobel Peace Prize for their efforts with micro credits (or microloans or microfinance) in Bangladesh.

Providing small cash loans to people in thirld world countries enabling them to start their own small business.

Now you can follow in the footsteps of Muhammad Yunus and make a real difference to the world.

This has got to be one of the best ways to help under privileged people in third world countries, giving them the opportunity to work themselves out of poverty.

The website www.kiva.org makes it all possible. You lend whatever you can towards a persons target amount and when the person reaches their goal and starts to make a profit, your loan is repaid. You will even recieve status reports on how your investment is going.

You will be paid no interest and there is no guarantee that you will ever get your money back, even though chances are high:

So far, Kiva has experienced a 100% repayment rate on all businesses with completed loan terms.

“Prior to Kiva, our Field Partners have historically experienced a >96% repayment rate with the poor they serve.

In the past 30 years, over 100 million of the world’s poor have received a micro-loan and demonstrated a >95% repayment rate. ”

You can lend from USD 25 upwards with a credit card or bank transfer through PayPal.

Visit www.kiva.org and find a project you’d like to invest in!

Fake Students Elligible for Loans

This is old news (as in the story came out last month) but I’ve only just found the article.

Apparently around 1600 students enrolled across the UK don’t exist.

Fraudsters enrol then use their fake status to obtain student loans.

One such fraudster borrowed over £65,000 using 17 fake identities!

“The government-owned Student Loans Company will not say how much money it has lost in this single fraud but investigators say the figure could reach £1.2m. ”

Read the full story

 

Quick Loan Round-Up

Some recent shifts in interest rates have led to a shuffling in the order of unsecured personal loans available online through affiliate programs.

The current standings (correct as at 20/06/2007 – information sourced direct from the lenders websites).

Ordered by typical APR:

Moneyback Bank Loan – 6.2%

Alliance & Leicester – 6.4%

Halifax – 6.4%

Bank of Scotland – 6.4%

Liverpool Victoria – 6.7%

AA – 6.8%

Sainsbury’s – 6.9%

Tesco – 6.9%

Virgin – 7.3%

Marks & Spencer – 7.4%

Eskimo Loans – 7.9%

Consumers wishing to find out more about each of these loans can find links to all of the above products > here

 

Silly APR

Payday loans have been big business in the USA for many years and are common place alongside credit cards and mortgages.

The idea is ‘quick cash’. Small loan amounts for short term borrowing.

The name ‘Pay Day’ suggests a ‘loan until payday’.

You take out a small loan of up to £1000 and you pay it off in 30 days or when you get paid.

Not a bad idea if you can’t get an advance from your boss and you need some emergency money but beyond that, these kinds of loans can be dangerous.

Now being advertised in the UK, pay day loans with a typical APR of 2339.30%

No, I did not just mistype, that is the real figure.

The cost of borrowing £250 for 30 days is £75. That’s 30% of the original loan value in just 30 days.

But you can extend your loan…. You can repay it over a longer period by just telling the loan company that’s what you want to do.

At a rate of 2339.30% APR, that is suicide.

I’ve got a basic loan calculator on my other site and if you put the figure of £250 for 12 months at a rate of 2339.30% APR, the total amount repaid over 12 months is £5848.26.

£5848.26 for a loan of £250….

Seriously people, only get one of these loans if you can pay it off quickly and even then think seriously about the value for money you’re getting and if it really is worthwhile…

If you borrowed the same amount from a mate and they tried to charge you that much, you’d laugh!

Cheapest & Lowest APR Secured Loans

For many years one of the unique selling points of secured loans has been something of a myth.

It has been advertised that the APR of secured loans is often more competitive than unsecured loans because they are less of a risk to lenders.

The loan is secured on property so applicants are less likely to risk missing payments.

However, this has not strictly been true. Over the last 6 years secured loans have typically been offered at a higher rate than most leading unsecured loans.

Until today! (Well, I only found out today…)

FirstPlus Homeowner Loans are now available through an exclusive partnership with moneysupermarket.com at the highly competitive and cheapest current UK online rate of just 6.2% Typical APR.

Here’s a link if you want to find out more

This rate is now one of the cheapest loans or lowest apr loans on the market among both secured and unsecured loans.

Although Netloans.co.uk are claiming to offer the lowest APR in the UK of 5.9% but if you read all the info, this is only available on loans over £75,000.

Only a couple of unsecured lenders (Moneyback Bank 6.1% & Northern Rock 6.2%) are offering a better rate than Firstplus and these lenders have been consistently offering market leading loan rates.

I’ve mentioned before in previous posts that APR is calculated as a 2/3 average of all loans sold to FirstPlus must be doing some spectacular deals at the moment.

Their own loan (directly available from www.firstplus.co.uk not the exclusive moneysupermarket.com offer) is currently on offer until June 15th 2007 at just 6.9%