It was reported last week that the Office of Fair Trading had carried out a review into the payday loan market and had decided that the services that these lenders offered were necessary and invaluable to those that were in need of finance but could not go through a mainstream lender. The OFT announced that it would therefore not be imposing price controls on the payday loan market, where the APR is sometimes more than 2500 percent.

However, this decision has now sparked fresh controversy and debate over whether payday lenders and other high cost credit lenders are actually providing a valuable and necessary service or whether they are simply preying on the more vulnerable. As part of its review the OFT looked at a number of loan sectors, including payday loans, which targeted sub-prime customers and low income consumers.

Marie Burton, financial services expert at Consumer Focus, said: “It is a cruel irony that people who are already struggling financially have to pay so much to borrow money. Unless more affordable credit is available, simply clamping down on high-cost lenders will not provide the answer because it may push people to riskier borrowing from loan sharks.”

She added: “The OFT’s report shows that it would be very hard to boost competition among high-cost lenders and drive a better deal for consumers. It is therefore important that the Government considers how it can make sure lower-cost borrowing, like credit unions, is available to borrowers on low incomes.”

Source - Independent

Over the past couple of years lenders in the UK have become far more restrictive when it comes to giving out finance to borrowers, with the effects of the global credit crisis and the recession leading to many lenders tightening up their lending criteria. At the same time consumer appetite for personal loans also seems to have dwindled, with many loathe to get themselves into further debt due to financial worries and possible job losses.

These and other factors are thought to have affected the number of personal loans that have been issued in the first quarter of this year, with recent figures indicating that personal loans have declined by over a third in the UK in the first three months of this year.

The figures were released by the Finance and Leasing Association, with the data showing that during the first three months of this year around £598 million worth of personal loans were granted. Compared to the first three months of last year this reflected a drop in thirty nine percent.

Fiona Hoyle from the FLA said: “Lenders are already making significant changes to the way they sell credit, to comply with the EU Consumer Credit Directive and the Office of Fair Trading’s new rules on responsible lending. The government’s proposal for further regulation before these changes have been implemented risks confusing customers and gold-plating the EU Directive.”

Source - Compare And Save

Many people in the UK get fed up of receiving marketing materials through the post from loan companies encouraging them to take out finance, and phone calls from companies trying to sell them loans and other forms of finance. However, two people have recently complained after receiving SMS messages via their mobile phones from a loan company in the UK.

The two complainants said that they had received a message from Yes Loans reading: “Hi XXX we have received your loan enquiry please call Yes Loans UK.com on XXX or reply yes for a callback txtSTOP2optout” They complained about the messages to the Advertising Standards Authority, stating that they had not applied for loans and found the informal nature of the message to be misleading as it was not clear that the text was actually a form of marketing for the loan company.

Officials from Yes Loans said that these text messages were normally sent out to people that had applied for loans either directly or through an affiliated company. However, the firm admitted that in the case of the first recipient the message had been sent out in error and with the second recipient it had been over two years since any loan enquiry had been made.

The Advertising Standards Authority said that the loans company needed to check that its databases were up to date and to make sure that any marketing materials were clearly worded in a way that would make it obvious that they were marketing materials. The loans firm has been told not to send the message again in its current form.

Source - Mortgage Strategy

Over recent years there has been a lot of bad press about pay day loans, and this has largely been based around the astonishing APRs that are charged on the loans. A pay day loan is a short term loan that is designed to tide consumers over until payday comes around, and the amounts available are generally relatively small amounts based on income and other factors.

With most pay day lenders not carrying out credit checks, and with the money being available on the same day in many cases, a lot of people that have been caught short financially have started using these loans. One industry official has recently stated that whilst the APR on pay day loans can be high these loans can be useful for occasional use when consumers find themselves in short term financial trouble.

Anything from a household emergency to unexpected bills can leave consumers high and dry financially, and whilst some people may have friends and family to turn to for a helping hand there are many others that do not. It is these people that may be able to benefit from these loans, and although the APR is high the loan is only granted over a very short term so the charges paid to borrow the money for a few weeks should not work out too high.

The industry official said: “These are primarily short-term loans, which can be availed without the need of attaching any valuable asset of yours as collateral. The loan amount can be utilised to serve various personal desires, such as phone bills, college fees, hospital expenses, electricity bills or tuition fees until your next payday.”

Source - Compare And Save

It has been revealed in a recent report that almost sixty percent of businesses in the UK were turned down for loans and credit last year from banks, even though the government had been putting measures into place to encourage lenders to give credit and loans to businesses that needed them. The data comes from a survey that was carried out recently by the Institute of Directors.

The results showed that fifty seven percent of businesses were denied loans from banks in the UK at a time when many were struggling and needed financial assistance more than ever. Twenty percent of businesses were found to have used credit cards in order to try and stay afloat financially. The results of the study contradict claims from the banking industry that it has been giving finance to businesses.

The British Bankers Association has said that the report from the Institute of Directors could be construed as misleading because the sample size that was used in the study was too small to draw any effective conclusions. However, the report suggested that whilst the government has pumped billions into the economy to try and boost lending most businesses did not benefit from these measures.

The study also suggested that a massive eighty three percent of companies that were turned down for finance received no information about government schemes such as the Enterprise Finance Scheme, which provides government guarantees on loans between one thousand pounds and one million pounds. Twenty percent of businesses were found to have not bothered to even apply for bank loans because they thought that they would either not get the loan or thought that it would be too expensive.

Source - BBC

Banks have been receiving bad press for the past couple of years as a result of many different factors, and it appears that the banking industry could be in the line of fire once again following revelations about the level of profit that banks are making on personal loans. It has been revealed in a recent report that banks are charging the highest interest rates on personal loans in the last ten years, leaving customers out of pocket and making record profits themselves.

Figures have shown that the average rate of interest being charged on personal loans is nearly twelve and a half percent, and this compares to the rock bottom 0.5 percent base interest rate set by the Bank of England. The margin between the base rate and the rate being charged to borrowers is now huge, and this means that banks are really cashing in by charging customers these higher rates.

One industry official said that competition in the loans market had plummeted and strict controls on Payment Protection Insurance may have contributed to higher loan rates from lenders. He said: ‘With unemployment at a near 13 year high of almost 2.5 million, and many families struggling financially, it is no surprise that the level of competition in the unsecured loan market has subsided.’

He added: ‘Not only is the risk of defaults higher in the current economic climate, the highly profitable Payment Protection Insurance cash cow is no longer there to subsidise lower loan rates. With banks and building societies still adopting a far more cautious stance even when it comes to mortgage lending, even with your property as collateral, it’s no surprise that the appetite for unsecured lending has pretty much dried up.’

Source - Daily Mail

As most people are aware the loans and finance markets have been very restricted over the past couple of years, and borrowing money has become very difficult for many people, particularly people from low income households. Desperation has led to many of these people looking for alternatives to get the cash they need, and officials have said that this has resulted in many poorer people kicking off 2010 in severe debt.

Many of those that have been unable to get the money that they need on credit cards and loans from traditional lenders have turned instead to unscrupulous loan sharks over the Christmas period so that they have the money to fund the cost of the festive season. However, this could have left many of these people struggling severely with a high level of debt to deal with and little in the way of protection.

Worryingly figures that were released by the Financial Inclusion Centre recently have suggested that around one hundred thousand families borrower money from an illegal lender totally around twenty nine million pounds. Some of these lenders were charging interest at around fifteen hundred percent, and on average borrowers would spend the next year repaying the money.

One woman that was taken in by a loan shark said: “If you’re absolutely desperate for money and this guy comes up to say ‘I’ll give you 500 quid’, you think ‘OK, I’ll have that’ It was a £500 loan to begin with and they were charging £30 a week, so in all on a £500 loan I must have ended up paying back about two or three thousand pounds.”

Source - BBC

It was announced this week by the Bank of England that the base interest rate was being kept on hold at 0.5 percent. This was the tenth month in a row where the base rate had been kept at this level, which is the lowest it has ever been in the history of the Bank of England, which spans over three centuries.

However, despite the base interest rate being kept on hold at 0.5 percent there are some lenders that have continued to increase the interest rates on their standard variable rate mortgages. Man y people that are coming off special deals such as fixed rate deals are moved on to these standard variable rate mortgage loans, and many new buyers opt for these because they can be the cheapest option in the current climate.

However, the fact that many lenders are increasing their SVR rates means that those that are on these mortgages are being stung for up to fourteen hundred pounds a year extra in mortgage repayments. Already around eight lenders have increased their SVR rates during the base rate freeze, and some industry officials believe that other lenders will follow suit.

One industry official said: ‘The momentum to increase SVRs appears to be gathering pace. Now that a few have taken the step, it is highly possible others will follow.’ Experts are concerned that increasing interest rates on mortgage loans will cause huge problems for some borrowers who have seen their pay frozen and are already struggling to keep up with bills and other financial commitments.

Source - This Is Money

Over the course of this Christmas there are many consumers that will have undoubtedly got themselves into a fair amount of unsecured debt with loans and credit card debts. However, worryingly there is evidence to show that some of these consumers may not even have finished paying off the debt that they accrued last Christmas as yet, and are simply adding to the debt resulting in a snowballing effect.

Some industry officials have now suggested that many of these consumers could find themselves better off if they used a consolidation loan to wrap up all of these various debts into one more convenient, lower interest loan, which would effectively save them money on their repayments each month and would mean that they only had one repayment to deal with rather than a number of different repayments and creditors to handle.

One official said: “Many of us will be getting into debt to fund our Christmas spending - whether that’s on credit cards, personal loans or overdrafts - and that’s not a problem for people who can afford to pay off this debt in reasonably short time-frame.”

He added: “The right option for clearing debt depends on the borrower’s individual circumstances. A lot of Christmas borrowers will simply have credit card and/or overdraft debts that are manageable enough, but don’t have any structured repayment plan. For some people, the temptation can be to make only the minimum payments on those debts, which can mean the debt takes a long time to pay off. This is where a debt consolidation loan can help. A debt consolidation loan can pay off multiple existing debts and will be paid back in fixed monthly repayments, so the borrower knows the debt will be paid off within a certain amount of time.”

Source - PR Web