Shark Attack

Posted on September 24, 2010 by Loanfinder

The war against Loan Sharks is gathering pace, as new ways of outwitting the practice of loan sharks and payday lenders exploiting hard pressed borrowers are introduced.

More than 100 MP’s have voted in an early-day motion, for a cap on the exorbitant cost of credit charged by firms offering quick and easy cash to people on low incomes.

Campaign group, End Legal Loan Sharking, describes the interest rates charged by loan sharks as a ‘national scandal’ and are calling for the government to step in and restrict the rates charged.[1]

Doorstep lending and loan shark rates sometimes top 3,000%, meaning that borrowers can be paying £30 interest on every £100 borrowed. Yet the Office of Fair Trading recently ruled that these kind of rates were acceptable – arguing that they worked ‘reasonably well.’[2]

The increase in the amount of people having to apply for these types of loans, however, has led to concerns about the exploitation of vulnerable customers being raised once more.

Marie Burton, of Consumer Focus, is quoted in the Daily Mirror, as warning that such high rates are leaving consumers who defer payments or take out repeat loans, as being caught in a ‘debt-trap’. [3]

The group says the number of workers using payday loans has risen 400% to 1.2 million since the start of the recession, leaving these borrowers owing £1.2billion to high-rate lenders.

The motion is also calling on the Government to provide alternative affordable sources of credit through the post office network, credit unions, and mutual societies. Meanwhile, the recent introduction of My Home Finance, a new Government lending scheme for those on low incomes, has been welcomed.

[1] http://www.mirror.co.uk/news/top-stories/2010/09/08/wage-war-on-loan-sharks-115875-22545403/

[2] http://www.guardian.co.uk/money/2010/jun/15/doorstep-lenders-interest-rate-cap

[3] http://www.mirror.co.uk/news/top-stories/2010/09/08/wage-war-on-loan-sharks-115875-22545403/

 

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My Home Finance

Posted on September 24, 2010 by Loanfinder

If you have poor credit or a low income, then accessing credit can be hard. But the government are stepping in with a new initiative designed to help.

Ian Duncan Smith, the Work and Pensions secretary, is launching a new loan scheme especially for people who are not able to borrow from the banks, because of having a low income or a poor credit rating.

The scheme, called ‘My Home Finance’, is being run by the Royal Bank of Scotland, The National Housing Federation, and the Wates Foundation. The aim is to provide loans at an APR rate of 29.9%, as a ‘fair price alternative’ to  doorstep lenders and loan sharks, who have been accused of exploiting those on low incomes with massive interest rates of (in some cases) up to 3000%.

Currently, some 2.5 million people borrow from doorstep lenders,[1] but My Home Finance, can offer loans for around £500 for a year, after applying through a face-to-face interview.

The scheme will start by the end of October, with ten branches opening across the West Midlands, where there is the largest number of people in the UK suffering from unemployment and low wages. If a success, the scheme will be available to anyone on a low income across the UK, from April.

MHF chief executive David Orr has said: “This ambitious not-for-profit sustainable scheme shows the determination of the housing association sector, the Government and RBS, to help financially excluded consumers join the financial mainstream by saving and borrowing in a fair and responsible manner.” [2]

The scheme is not without its critics though. A rate of 29.9% is about the same as a bad credit credit card interest rate, which if paid off at the end of the month, would not cost anything at all. And Malcolm Hurlston, chairman of the debt advisory charity Consumer Credit Counselling Service, is quoted in The Guardian as saying that although he is welcoming of the launch of My Home Service, that the limited number of loans available would mean that it could not replace doorstep lenders and payday loans. [3]

Whether the scheme is a success or not, is hard to say at this stage. But access to loans at a more affordable rate is certain to be welcomed by a great many people currently finding it so difficult to borrow.

[1] http://www.newstartmag.co.uk/news/article/3248/fair-credit-scheme-launched-for-financially-excluded

[2] http://www.yorkshireeveningpost.co.uk/news/My-Home-Finance-Lender-offers.6545566.jp

[3] http://www.guardian.co.uk/money/2010/sep/23/my-home-finance-government-loan-scheme

 

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The Credit Crunch Strikes Back

Posted on September 21, 2010 by Loanfinder

If you’ve ever worried about being eaten by a shark, choking to death, or your plane crashing, these facts might help. The odds of dying in a plane crash are 1 in 5.4 million. [1] And if that doesn’t reassure you, then how about death by shark attack? That’s only 1 in 264.1 million.[2] The odds of choking to death are the highest at 1 in 370,000.[3]

So how we view risk is generally completely irrational –  and made a lot worse by films like Jaws and Airport. (There has yet to be a disaster film about anyone choking on a peanut), and anytime there is a real disaster, we tend to overreact.

The banks however, have gone into disaster movie overdrive.  Years of taking risks have caused one of the biggest financial crashes in history, and so the banks have decided they don’t like risky business anymore, putting the brakes on lending to all but the most watertight customers. But, (and this is an even bigger but), even when they do lend, their rates are rising.

The Bank of England have just released their quarterly report (20th September 2010) highlighting the fact that unsecured loans are costing far more than before the credit crunch. Banks are not passing on the low base rate of 0.5 %, and instead, are profiting by charging 38 times more. (Source: The Guardian Online, Business, Sep 20th 2010)

In other words, the banks are boosting their profits by hiking up interest charges across all forms of lending, from around 8.5 % to around 11%, on everything from overdrafts to credit cards.

The reason for this is thought to be due to the banks covering themselves against any further bad debts, and building their capital, leading to bad news for anyone hoping to borrow.

The government say they are aware of the problem, and Business Secretary Vince Cable has fiercely criticised the banks for not lending, particularly to business. Yet the banks argue that there is a lack of demand for customers.

The figures however, suggest otherwise.  The amount of applications for payday loans has quadrupled since 2009 to 2010, and demand for all forms of credit is greater than ever. Just as importantly, customers need loans at rates they can afford. £183million is paid in personal interest on debts in the UK on a daily basis.[4]

However, any hope of things improving  still seems a long way off: experts are predicting that prices could rise further, as more customers default on their debts due to unemployment and spending cuts.  (Source: Finance Markets, 20th Sep 2010)

If this was a real disaster movie, someone would save the day. Probably George Clooney. But it doesn’t look as if anyone is coming to the rescue yet…so until then, we’ll all just have to stay in, and  watch DVD’s. Erm, The Perfect Storm anyone?

(If you like maths and are feeling a bit geeky – you can read the Bank of England’s Quarterly Report here.)

[1] http://www.planecrashinfo.com/cause.htm)

[2] http://diver.net/bbs/posts001/55446.shtml

[3] http://quazen.com/games/gambling/intriguing-death-odds/

[4] http://www.creditaction.org.uk/debt-statistics.html

 

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Tax Scam

Posted on September 17, 2010 by Loanfinder

HMRC are warning people against a tax scam, as fraudsters take the opportunity of the tax chaos to launch a ‘phishing’ campaign.

Almost immediately after the tax mistake hit the headlines, the scammers got to work by sending out thousands of emails to try and swizz people out of their money, under the pretence of being from the HMRC.

Using the HMRC logo, the email claims to help you apply for your tax rebate, by containing a link asking for bank details. The scammers are then able to access your bank account.

The HMRC website gives the following advice: ‘HM Revenue & Customs (HMRC) would not inform customers of a tax rebate via email, or invite them to complete an online form to receive a rebate of tax. Do not visit the website contained within the email or disclose any personal or payment information.’

However, there are also independent warnings from financial experts,  that scammers may even attempt to con people with letters, so always check with the HMRC that the address you’re replying to is the real one.

To contact HMRC, click here.

 

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Changing your bank account

Posted on September 17, 2010 by Loanfinder

The changes that have been made to overdraft charges and in-credit interest rates in recent months, means that the bank account that served you well five years ago, could now be well past its sell-by date. In fact, it’s a bit like having a mullet or big hair – it was way cool in 1986, but just isn’t working for you now. Yet new research from Santander, shows that 27% of people think switching their account is too much hassle. (Source: The Independent. Sep 12th 2010)

Banks and building societies, however, now have to follow strict bank account switching guidelines. Basically, they have to pass on every detail about your account to your new bank within three days. This includes direct debit and standing order information. So switching doesn’t have to be difficult – and you could save (or even earn) money by doing so. Some banks will give you up to £100 for moving over to them.

To choose a new account, you must, as always, compare what benefits there are to you. You can use a comparison tool such as this one at moneysupermarket to help you decide. Bear in mind though, that opening a new account will also depend on your credit score, and some accounts now need you to pay a minimum amount in every month.

Once you have decided on a new account, there are a few things you need to know to make the move as smoothly as possible.

Opening a new account:

To open a new account, you will need a passport or driving licence, and a proof of address, such as a utility bill. Once the bank has approved you, they have ten days to open your account. Your old bank has three days to transfer all your direct debit and standing order information to the new bank.

Keep the old account open until the new one is running well – otherwise, if a direct debit payment or standing order has been missed, your credit record could be damaged.

What your new bank has to do:

Your new bank will provide you with a copy of all the information they have received from the old bank about direct debits etc.

Contact all the direct debit companies, asking them to change their records.

Ask your old bank to cancel all the old payments you have with them.

Set up standing orders on your new account

What you have to do:

Tell your employer or pension provider (or anyone who pays you money) of your new bank details

Return all your old cheque books and cards to the old bank, or confirm you have destroyed them.

Tell your old bank when you would like to transfer any funds you have in their account to the new one.

If you’re still not sure, it’s worth knowing that 70% per cent of people say they didn’t experience any problems during the process. (Source: The Independent , 12th June 2010) Just take time to find the right account, and you could find an account that’s easier on your pocket. And apologies if you still have a mullet…they say everything comes round again. It could be soon.

 

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