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Monthly Archives: July 2016

Guide to Low Cost to Borrow

Since a couple of hundred pounds is a generally little level of obtaining, you may be enticed by a payday advance. This truly should be kept away from however, as it’s a costly type of obtaining – and an unsafe one on the off chance that you can’t clear the obligation in full before the month’s over. It could even influence your odds of getting a home loan now new more tightly principles have been acquired.

Contingent upon the amount you need to acquire, you may need to simply utilize a charge card as of now in your wallet. On the off chance that you can fork over the required funds before the end of month, this is a feasible alternative. In the event that you don’t clear the adjust, be that as it may, you can ordinarily hope to fork out enthusiasm at around 18%.

# …£1,000 to £7,500

At the lower end of this scale, a 0% purchase credit card can give you as long as 18 months to pay down the balance. For example, the Santander 123 Credit Card charges 0% interest on spending for 18 months, while paying cashback of up to 3.00% on travel and household bills.

If, for example, you wanted to borrow £1,000 for a new sofa, you could use the card to get one at John Lewis, give yourself a year and a half to spread the cost and earn 2.00% (£20) cashback in the process. You’ll need to clear the balance in 18 months, though, or else you’ll pay interest at a representative 16.5% APR.

If you are not buying anything but want to borrow to pay off more expensive debt for example, consider a card that offers 0% money transfers. A money transfer allows you to take agreed credit as cash from your card which is then paid directly into your current account.

Most of money transfer deals are offered by card giant MBNA which has just improved some of its football credit cards to now offer 29 months’ interest-free on cash transferred into your account for a 4% fee. You can read more about this in Les Roberts’ article. The best deal though (also from MBNA) is its Platinum Credit Card which offers 30 months at 0% on money transfers with the same 4% fee.

Another port of call for borrowing of this size is a personal loan. Loan rates have been plummeting recently – as we explain in our in-house research here – though the very cheapest deals (which are as low as 4.3% APR) are only available on borrowing between £7,500 and £15,000.

However, you can still borrow £3,000 over three years with Hitachi Personal Finance at a representative 7.8% APR, meaning you’d pay £374.28 in interest.

# …£7,500 to £15,000

This is perfect personal loans territory because, as we explain above, rates are at all-time lows. You can currently borrow between £7,500 and £10,000 over two to five years with Hitachi Personal Finance at a representative 4.3% APR.  At this rate, over five years, a £10,000 loan would cost you £1,131.33 in interest.

This is as low as loan rates get right now, but if you want to borrow between £10,000 and £15,000 there are still some decent deals to be had. For example, you can borrow between £7,500 and £15,000 over one to three years with Sainsbury’s Bank at 4.4% representative APR.

If you borrowed £12,000 over three years at this rate, you’d pay back a grand total of £12,831.37.

# …£15,000 to £25,000

At this borrowing bracket, a personal loan may still be an option as they tend to be capped at £25,000. Clydesdale Bank will lend you £20,000 over five years at a representative APR of 5.8%. The total charge for credit would be £3,005.29, which means you’d pay back a total of 23,005.29.

But in this and all other cases, the loan rate you get is entirely dependent on your income and personal circumstances. And only customers with the best credit scores will get access to the lowest loan rates.

…£25,000+

Anything above £25,000 and you’ll be looking at secured loans.

Secured or ‘homeowner’ loans offer a way to borrow larger sums of money by using your home as security. Because of this, they carry a greater risk than unsecured loans. In fact your home may be repossessed if you do not keep up with repayments on a mortgage, loan or any other debt secured on it.

Rates on secured loans currently range from around 5% to 8% and can be paid off over anywhere between one and 25 years. For example, you could borrow £30,000, secured against your home, over 15 years at a rate of 5.2% with Fluent Money. Over the term of the loan you’d pay £12,928.33 in interest.

If you are a homeowner though, and your current mortgage deal is approaching its end, it will almost certainly be cheaper to borrow a little extra when you apply for your next deal. Even if you haven’t paid much capital off your mortgage debt, your home may have increased in value sufficiently for you to qualify for the extra loan. And if you shop around and get a lower mortgage rate than the one you were on, you may even find your monthly repayments stay the same. Nevertheless, don’t take any extra secured borrowing lightly as it can really impact your flexibility and budget in the future.

Use Inexpensive Loans to Buy

An individual advance empowers you to acquire money (commonly amongst £1,000 and £25,000) without securing it against your home or some other resource. This is the reason they are otherwise called unsecured credits.

You can generally pick to reimburse whatever you get over terms crossing 12 months to 5 years. The financing cost – and month to month reimbursement – is settled over whatever term you pick.

APRs (annual percentage rates) on personal loans have been steadily falling over the past few years and the best deals now charge less than 4%. But these lowest rates only apply only to mid-sized loans of between £7,500 and £15,000. Borrow either side of these thresholds and you’ll pay much more in interest.

# Best deals

Sainsbury’s – which won Best Unsecured Loan Provider at our 2015 Supers awards – is currently offering a competitive 3.7% (representative) on borrowing between these amounts. But if you’ve got a Nectar card (and don’t need longer than a three-year repayment term) the rate is reduced to 3.6%.

Sainsbury’s is unusual in that it extends its personal loan offerings right up to £35,000 – we covered the news story at the time. But the bank’s rates for bigger loans start at around 7% APR.

Elsewhere, M&S Bank has also slashed rates on its personal loans down to 3.6% (representative), again, for borrowing between £7,500 and £15,000. If you want to borrow over a four or five-year term, this is the lowest rate on record which is accessible to all applicants. Existing current account customers with Nationwide and First Direct will have access to the same 3.6% rate over all repayment durations.

You’ll need to have a cracking credit score to be accepted for any loan this cheap. If you are not convinced of yours, use our Smart Search tool when applying, which will give you an indication of whether you’ll be accepted and won’t leave a footprint on your credit file.

# Loan alternatives

Some personal loans maybe the cheapest in history but, for smaller sums when rates shoot up to mid-double figures, a 0% interest credit card could be a better bet.

If you want cash, MBNA’sPlatinum Credit Card will transfer it into your account interest-free for the first 24 months. The related money transfer fee has also been reduced to just 1.94% if you use MoneySuperMarket.

If you can pop the cost straight on a credit card, Santander’s 123 card won’t charge a transfer fee and is interest-free for 23 months. There is an annual fee of £24, though this is waived for the first year if you have a 123 current account.

While the first part of your borrowing may be interest-free with a credit card, APRs that kick in when the 0% term expires are high (18.9% and 15.5% representative in these two examples) so ensure you clear your balance in time.

This is something worth considering if opting for piano lessons, which can take up to four years to get beyond Chopsticks.

Know More about Payday Loans Basics

# How do payday advances function?

You can for the most part get amongst £100 and £300 with a payday advance, albeit a few loan specialists permit you to acquire as much as £1,000.

As indicated by investigation by the Competition Commission, the normal payday credit is £260, however a fourth of advances are for £100 or less.

Advances ordinarily keep going for 31 days, and yearly rate rates (APRs) charged can be as high as 5,000%. Subsequently, a payday credit can cost as much as £25 for each £100 acquired. Banks contend that rates are set at this level as payday advances are typically reimbursed inside a brief timeframe.

# How do you repay a payday loan?

When you apply for a payday loan, you will often be asked for your debit or credit card details, so that the lender can set up something called a ‘continuous payment authority’.

This basically means the lender can take money from your card at any time, and they can also change the size of the payment without warning.  However, the city regulator the Financial Conduct Authority (FCA) which began regulating the payday loans industry on April 1 this year, introduced new rules on the same date to restrict the amount of the times a lender can take money from a borrower’s account without their specific permission to two. Lenders must also, wherever possible, only take full repayments.

You can cancel an existing continuous payment authority by contacting the company and asking it to stop. You can also cancel directly with your card issuer, although you should also inform the company too. Remember that even if you cancel the continuous payment authority, you will have to pay off what you owe another way.

# What happens if you don’t pay off your loan by the agreed date?

According to the FCA, over a third of all payday loans are repaid late, or not at all. If you can’t repay what you owe, the amount you’ve borrowed can soar due to the hefty interest rates charged.  Loans are often rolled over, so even though a loan might be advertised as lasting for a month, they can last much longer.  However, again, since April 1, lenders have to limit the number of rollovers to two, so that loans can’t last indefinitely.

# Are there certain rules payday lenders have to abide by?

Yes, there are. As part of the FCA regulations, payday lenders must make sure that their customers can afford the loans they take out. Previously, it was pretty easy for just about anyone to take out a payday loan, but now payday lenders have to conduct proper credit and income checks to ensure that borrowers can repay what they owe.

Lenders must also let their customers know where they can get free debt advice if their loans are being rolled over or refinanced. However, they don’t have to provide this information when a loan is first taken out.

The FCA has also introduced rules that require payday loan adverts to include a ‘wealth warning’. Any advertisement should include the following statement ‘Warning: late payment can call you serious money problems. For help, go to moneyadviceservice.org.uk.’

Lenders who don’t comply with the new rules risk being shut down, with the FCA estimating that up to one in four firms could be forced of business.

# Are any other further steps being taken to protect consumers?

Yes, the FCA is currently working on introducing an interest rate cap, so that payday lenders can’t charge rates above a certain limit. It plan to start consulting on how this will work in July, and the cap is due to come into effect in January next year.

# What if I have a complaint about a payday loan?

Your first step should be to contact the lender directly. If you aren’t satisfied with their response, or don’t get one in eight weeks, you can take your complaint to the Financial Ombudsman Service, which will investigate on your behalf.

# What are the alternatives to a payday loan?

You may want to consider a credit card instead of a payday loan.  Provided you pay off what you owe within a month – as you would have to with a payday loan – borrowing is interest-free.

Alternatively, if your credit rating is less than perfect, you may want to speak to your local credit union, as they may be able to help you. A credit union is an independent local co-operative organisation whose aim is to help those who might not have access to financial products from banks and building societies.