Some Tips For Loans as Borrowing Gets Harder

It is no surprise to any of us that interest rates have risen and are still rising and lenders are able to be choosy so borrowing on a whim is no longer possible.

The credit crunch has made borrowing prohibitive as the bank loan rates have soared on personal loans and mortgages. The popular lenders have made increases in the last couple of weeks including Nat West with a 2.5 per cent rise.

Michelle Slade from the financial comparison website Moneyfacts.co.uk says, "It is not only mortgage rates that continue to increase, so have personal loan rates and monthly repayments."

She says Tesco Personal Finance has gone up another 0.6 per cent, Lombard Direct has gone up 1 per cent, the AA is up 0.1 per cent and Barclaycard rates have increased by 0.5 per cent. Barclaycard have also put a stop on their one-time best-buy product which they used to offer through Masterloan.

At least half of the lenders who offer personal loans have altered their charges since the beginning of the year.

An increase of 11 per cent on smaller loans by Black Horse has seen an addition of 52 pounds and 68 pence in interest, per year, on a 1,000 pound, one-year loan.

To borrow 25,000 pounds from the Nat West over 5 years with a rate increase of 1.5 per cent on these bigger amounts, will see an extra 1,015 pounds and 20 pence on the total cost of the loan.

Some lenders have actually reduced rates. Brittania BS and Moneyback Bank lowered rates at the beginning of 2008 and a loan for 5,000 pounds with the Clydesdale Bank or Yorkshire Bank can cost up to 7 per cent less than before.

The experts are all echoing that in such glum economic circumstances and family budgets are really being squeezed borrowing should be thought about.

Steve Wilcox at Citizens Advice warns, "The fact that a lender has approved your loan does not mean you can afford the repayments, "and he goes on to say, "Loans are not for paying off current borrowings or to buy everyday essentials such as food or energy. While there is a credit crunch on, lenders still need to make some money but borrowers must be extra-careful that they can afford repayments."

Do not forget, if you can justify borrowing, that the "typical rate" may not be the rate that you will be offered. By law a "typical rate" must be offered to a minimum of 66 per cent of approved borrowers, which leaves a remaining third that may well be charged a higher rate.

As we know, lenders are picky so you may not qualify for a loan if your credit history is nothing other than perfect; the slightest blip may cause your application to be turned down flat.

Also, buying Payment Protection Insurance from your lender is not a good move and can cost you thousands. If you want this cover go for independent cover from insurers like britishinsure.com or paymentcare.co.uk.

Another mistake is to assume that your own bank will offer you the best the deal - get quotes from other lenders.

You must not forget that every application you make for a loan will leave a footprint on your credit file which in turn might push up the rate that you are offered or you could result in being refused by lenders contacted subsequently.