SCARY but true: it is now possible to borrow pounds 25,000 over the phone. If you are considered a good credit risk, Direct Line and Coutts offer pounds 25,000 loans. The move comes after a change to the Consumer Credit Act 1974, which previously limited borrowers to pounds 15,000. So if you are planning to buy that BMW this August, there are alternatives to the car dealers finance. You can borrow from as little as pounds 300. And if you want the money urgently, you can get a decision from some lenders within a few hours, depending upon the amount you want to borrow. If you are borrowing a large amount, lenders have to be confident that you can pay the money back. “We check customers details very carefully,” said Lydia Young, of Direct Line. “We can agree a loan in principle over the phone, but we then ask a customer to fill in an application form and submit salary slips before we can give a firm agreement. But we can usually agree a loan within a few days.” Unsecured personal loans are usually available to anyone who can satisfy the lender that he or she is a good credit risk. If you are in regular employment and have lived at your present address for more than three years you stand a good chance of been given a loan. Repayment terms vary between six months and 10 years. The longer the term, the more you will pay back. So try to pay back as much as you can, without stretching yourself too much. As a rule, dont set aside more than 10 per cent of your takehome pay in loan repayments. Some lenders will allow you to take a payment holiday of two or three months and others, such as Sainsbury, allow you to defer your repayments. This could be useful if you know your finances are going to be stretched in the short term. But lenders offering payment holidays tend to be among the most expensive. The amount you repay will depend on the amount you borrow, the repayment term and annual percentage rate (APR). You can also opt to take payment protection. This guarantees your loan repayments if you are unable to pay because of illness, injury or unemployment, but it will increase the cost of your loan considerably. Try to avoid this if you are in a steady job: it puts about pounds 20 a month on every payment on a pounds 5,000 loan. Watch out for the small print: Birmingham Midshires, Co-operative Bank, First Direct, Marks Spencer and Northern Rock charge a higher APR if you do not agree to take out insurance. There may be other costs that arent included in the repayment tables. Capital Bank, for example, charges an pounds 85 loan arrangement fee, and Royal Bank of Scotland charges a fee of 1 per cent with a minimum of pounds 25 and a maximum of pounds 60. Most lenders want you to repay your loan monthly by direct debit. And you can pay the loan off in full before the end of the term, but you will usually be charged a penalty of one or two months interest. If you think you can pay off the loan with a lump sum, such as a bonus from work, look for a loan that does not charge a penalty. Most lenders provide leaflets with a breakdown of costs. Each lender should quote an APR. This is the cost of borrowing, based on the interest rate, fees and other administrative costs. But lenders do calculate APRs in different ways so they can be difficult to compare directly. Your existing bank or building society may give you preferential rates, but dont automatically let it lend you the money. It makes sense to get a few quotes. Always look at the total cost of borrowing, not just the APR. The personal finance pages of weekend papers carry details of the cheapest rates. If you want to borrow a small sum of money over a short period of time, you may have problems. Only a handful of lenders will lend as little as pounds 500 and the minimum repayment can be six months, but more usually a year. Taking out an overdraft or borrowing on a cheap credit card can be a cheaper and more flexible way of borrowing in the short term. Theres also the advantage that you can repay the money back when you like, without paying a penalty. q Amanda Jarvis writes for Moneywise magazine. Unsecured loans: the cheapest lenders This table supposes a loan of pounds 5,000 over three years. Monthly premiums are shown without payment protection insurance. Premium Loan range APR Loan term Redemption penalties Coutts Co1 pounds 16461 pounds 2,000-pounds 30,000 123% 6mths- 7yrs 1 months interest local branch Yorkshire Bank2 pounds 16577 pounds 300-negotiable 123% 6mths-5yrs none 0800 202122 Northern Rock pounds 16610 pounds 1,000-pounds 15,0003 99% 1-7 years 2 months interest 0345 421421 Prudential Banking pounds 16630 pounds 1,000-pounds 15,000 127% 1- 5 years none 0800 000223 Hamilton Direct Bank pounds 16636 pounds 500-pounds 10,000 128% 1- 5 years 2 months interest 0800 303000 Direct Line pounds 16638 pounds 1,000-pounds 25,000 128% 1-5 years 1 months interest 0181-680 9966 Royal Bank of Scotland Direct pounds 16638 pounds 2,000-pounds 15,000 128% 1-5 years none 0800 121125 Lombard Direct pounds 16653 pounds 800-pounds 15,000 129% 2-5 years 2 months interest 0800 215000 Capital One Direct pounds 16654 pounds 2,000-pounds 10,000 129% 2- 5 years 2 months interest 0800 216(Trade Mark) Alliance Leicester pounds 16756 pounds 500-pounds 15,000 133% 1- 5 years 2 months interest 0990 626262 Bank of Scotland Banking Direct pounds 16660 pounds 500-pounds 15,0004 129% 1- 5years 2 months interest 0800 805805 Notes: 1Available to account holders only; a fee of 05% (min pounds 25 is charged). 22% discount if current account also opened. 3Loans over pounds 10,000 for existing customers only, 4 Deferred payment option. Source: Moneyfacts
MONEY MART LOAN SHARK *A report on abusive lending practices, released in November 2004, put the spotlight on Money Mart, one of an estimated 1,200 payday lenders across the country. The effective annual interest rates of these outfits range between 300 and 900 per cent, but, in the case of Money Mart, they go as high as 1,000 per cent. Yes, thats 1,000 percent. Its a $1-billion-a-year business, and virtually unregulated. The report was released simultaneously in British Columbia and Ontario. ACORN has called on the governments of both provinces to enforce the Criminal Code (SEC. 347), which outlaws rates higher than 60 per cent. They have also called on the provincial governments to implement a comprehensive regulatory system governing the industry, to protect Canadians from predatory lending practices. For a copy of the report see ACORNs website.
PAUL Gibson is a 23-year-old recruitment consultant living in London. He graduated from Leeds Metropolitan University last summer after completing a four-year degree in European languages and business studies. Paul has a graduate account with HSBC. He took out a graduate loan for pounds 4,000 last July to help with the cost of moving to London. He also has an interest-free overdraft, which allows him to go overdrawn up to a maximum of pounds 1,500, although this will reduce to pounds 1,000 in a few months. On top of this, he is in the process of buying a flat and has taken out a pounds 125,000 mortgage with HSBC. Its graduate terms mean that his monthly payments will be interest-only for the first three years, which Paul believes will help him clear his debts.
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