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http://money.uk.msn.com/Banking/Loans/Spec...cumentid=860223

Sly banks keep borrowers in the dark

By Stuart Farr, Moneyextra.com

September 01 2006

Bankruptcies are up, interest rates are up, is now the right time for you to be borrowing?

If you're not fazed by financial doom and gloom and still view a personal loan as your required financial solution, how do you find the best buy personal loan for you when interest rates are not headlined as frequently as they were?

Over the past 12 months, banks have become increasingly evasive when it comes to revealing the cost of borrowing on their loans. Many are now keeping potential borrowers in the dark by using the concept of 'personal pricing'.

Barclaycard spearheaded this wheeze last year; other lenders have since adopted the same tactic. Earlier this year, the Halifax and Bank of Scotland both stopped quoting typical APRs in advertising personal loans.

Consumer groups condemn

Consumer watchdog Which? has condemned this approach as “sneaky”, wondering how customers will ensure a good personal loan deal when there is no easy way to compare the APR (annual percentage rate) . There is speculation that the increased popularity of price comparison websites in recent years has prompted banks to adopt this veil of secrecy.

Bank justification

For their part the banks argue that personal pricing allows for a better service, as customers are offered an individual rate of interest reflecting their circumstances and the size of the personal loan they require.

However, by refusing to publicise loan rates, banks can sidestep the advertising rules included in the Consumer Credit Act of 2004, whereby two-thirds of successful loan applicants responding to an advertisement must be offered the quoted APR.

The unlucky one-third are deemed to draw the short straw of 'risk-based pricing', whereby credit history is scrutinised and personal loans offered (if at all) at a more expensive APR.

Now, it seems, with 'personal pricing', applicants provide basic personal details and are given an estimated loan rate which can then be adjusted up or down after a full credit search has been carried out.

Existing bank customers obviously stand a better chance of scoring a good loan rate. If you are an outsider and reject the final interest rate offer, preferring to shop around some more, you run the risk of building up footprints on your credit file.

The importance of your credit rating

This is why, when hunting down the best personal loan deal, you need to be fully au fait with your credit situation.

If your credit situation is good, then you can feel confident about applying for a competitively priced personal loan. If turned down, think hard before approaching other 'good deal' lenders, as each will search your credit file, leaving behind a footprint. Too many footprints from too many unsuccessful loan applications in a short time-frame will count against you for future borrowing. In this respect, your existing bank might be the best second option if you've failed in your first cheap deal attempt; albeit more expensive.

Beware PPI

Whatever personal loan arrangement you come to, beware the iniquitous payment protection insurance (PPI) . Loan providers are keen on PPI as it represents £6 billion a year to them. Do you really need it? Do you have other insurances which will cover personal loan repayments in the event of accident, sickness or unemployment? If you're self-employed you are typically excluded from most PPI policies anyway.

Although it might give you peace of mind, PPI can rack up the cost of repaying a personal loan. For instance a recently quoted Bank of Scotland loan of £10,000 over five years cost £11,661 to repay; adding on PPI raised this to £16,114 and increased the APR from 6.4% to 22.7%.

If PPI is needed then it is best to opt for a stand-alone policy at a monthly premium. Avoid lenders who add the PPI premium to the loan at the outset, as you will end up paying interest on both premium and actual loan.

Note that the Post Office has now entered the market with a PPI stand alone policy which beats many major high street lenders on both cost and the level of cover, although critics are concerned about its 30-day termination clause.

Finding a competitive deal

In today's financial climate, with many banks reticent about advertising loan rates, obtaining a competitively priced personal loan really boils down to two elements. You need to be aware of the level of credit risk you present and, thus armed, approach a lender wanting your custom.

Against a background of rising national indebtedness, arguably the result of aggressive loans marketing in recent years, the major banks have all recently complained about having to make provision for bad debt. The tide has turned. The Bank of England has increased the base rate by a quarter percentage point after a year of interest rate stability, and the Financial Service Authority has noted that almost three million consumers endure a constant struggle to keep up debt repayment.

More than 23,000 people became insolvent in the first three months of this year, a 73% increase on the number of insolvencies in 2005's first quarter. A government report earlier this month predicted up to 28,000 bankruptcies per quarter by 2009.

Think carefully, therefore, about how you will manage your debts.

The contents of this article is nothing new, but you gotta love the tone... :unsure:

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Beware PPI

Whatever personal loan arrangement you come to, beware the iniquitous payment protection insurance (PPI) . Loan providers are keen on PPI as it represents £6 billion a year to them. Do you really need it? Do you have other insurances which will cover personal loan repayments in the event of accident, sickness or unemployment? If you're self-employed you are typically excluded from most PPI policies anyway.

Loads of policies were sold to self-employed and other whom the sellers knew had NO CHANCE of ever claiming. No more than legalised theft, known about for years and untouched by the regulators.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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