Personal Loans Increase But At What Cost

Personal Loans Increase But At What Cost?
At one time,​ borrowing money from the​ bank would have involved getting out the​ best suit and grovelling to​ the​ manager.
These days,​ banks ring customers at​ home and ask them if​ they want to​ take out a​ loan .​
In fact,​ they almost give you​ hard time if​ you’re not borrowing.
Just as​ it’s never been easier it’s also never been quicker .​
You can pick up the​ phone and arrange to​ borrow money as​ quickly as​ you​ could book a​ table at​ a​ restaurant.
About two-thirds of​ the​ way up,​ somewhere between a​ credit card and a​ mortgage,​ is​ the​ personal loan.
A credit card these days means being able to​ buy that must have dress or​ CD before pay day,​ but more expensive single expenses,​ such as​ buying a​ car,​ paying for a​ wedding or​ doing up a​ house,​ it’s the​ personal loan that has taken over.
While credit card borrowing fell by £300 million in​ mid 2018,​ net lending on​ personal loans and overdrafts rose by almost three times the​ amount seen in​ June,​ the​ latest statistics from the​ British Bankers' Association (BBA) show.
New credit card borrowing reached a​ four-year low reaching £7 billion,​ while personal loans and overdrafts grew in​ popularity,​ up to​ a​ net lending of​ £655 million.
Director of​ statistics at​ BBA,​ said that despite the​ decline in​ mortgage lending,​ other means of​ borrowing of​ becoming more popular and convenient.
Unsecured lending is​ displaying quite a​ different trend,​ with the​ growth rate continuing to​ decline,​ largely reflecting the​ ongoing contraction in​ credit card borrowing,​ the​ director said.
In April,​ Moneyfacts said that while credit card transfers can offer cheaper rates than personal loans,​ people lacking discipline with their repayments could benefit from the​ structure a​ personal loan provides.
However,​ new research from uSwitch seems to​ indicate that the​ less you​ borrow on​ a​ personal loan in​ the​ UK,​ the​ more likely you​ are to​ be paying interest rates that are higher than the​ lender’s advertised Annual Percentage Rate (APR).
The major lenders all apply penalties when borrowers look to​ repay early .​
Paying the​ loan early will automatically trigger a​ charge of​ £175.
But the​ charges don't end there .​
Complicated small print explains that borrowers are tied into the​ loan for eight years.
Loans can run for as​ long as​ 25 years given the​ amounts involved .​
But if​ you​ want to​ repay your loan within three years you​ will have to​ pay six months' worth of​ interest on​ the​ outstanding amount.
Given that some customers are paying as​ much as​ three to​ four times the​ going market rate for loans of​ higher amounts it​ is​ estimated that more than half a​ million Brits who took out banks loans of​ less than £5,​000 in​ the​ last year are paying too much.
There may now be a​ very valid and justified complainant that they’re being unfairly hit by this policy of​ applying different interest rates depending on​ how much is​ being borrowed.
Nonetheless,​ UK loans do still remain one of​ the​ cheapest possible ways for Brits to​ borrow large sums of​ money (over £5,​000) and so the​ costs of​ funding for small loans (under £5,​000) by UK banks should be viewed with caution.
Shop around for the​ cheapest personal loan possible is​ also the​ advice of​ the​ head of​ personal finance at​ uSwitch,​ who notes that interest rates do remain highly uncompetitive on​ small loan amounts in​ the​ UK.
This would appear to​ be the​ case regardless of​ whether or​ not the​ personal loan is​ secured or​ unsecured as​ UK lenders still apply a​ tier based system to​ the​ interest rates they charge.
Alternative borrowing,​ such as​ a​ 0 per cent credit card,​ should also now be included in​ any alternatives you​ are looking at​ if​ you​ are considering taking out a​ small loan in​ the​ UK with a​ very limited repayment period.
Alternatively,​ it​ may just be the​ times for Brits to​ start thinking of​ borrowing larger sums of​ money just to​ help reduce the​ cost of​ the​ borrowing.
Personal Loans Increase But At What Cost Personal Loans Increase But At What Cost Reviewed by Henda Yesti on August 12, 2018 Rating: 5

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