Loan lenders, including banks, are facing severe restrictions on their sales of lucrative loan insurance.

Payment protection Insurance (PPI), is meant to repay borrowers’ loans if they fall ill or lose their jobs, but are currently costing borrowers over £4billion.

According to the Competition Commission, lenders will no longer be able to sell PPI when they grant a loan, or for seven days afterwards.

Though, borrowers will still be able to approach their lenders about buying PPI policies 24 hours after taking out a loan.

The Commission expects PPI providers to meet its requirements regarding giving consumers better information by April 2010, and will introduce new measures in October 2010.

The Competition Commissioner also added it would have “lower prices and better choice.”

Their deputy chairman, Peter Davis, said: “the ‘point-of-sale’ advantage has meant that leading providers have faced little competition for PPI and, as a result, have charged persistently high priced.

“Consumer’s interests are not best served when the only choice the vast majority have is whether or not to purchase their credit provider’s PPI product.”
“The resulting lack of competition means that the only offer consumers get is simply worse value than they are entitled to expect.”

Currently, there are over 12million PPI policies enforced, mainly sold alongside credit cards, mortgages and personal loans.

Louise Hanson is head of campaigns at Which?, and said:“For too long too many consumers have suffered from shoddy, expensive and inadequate protection.

“It’s a great shame that since we began campaigning for better products, many people have wasted millions of pounds on PPIU and have been ripped off in the process.”

Association of British Insurers’ (ABI)s’ Nick Starling said:
“The point of sale ban carried significant risks for borrowers, mainly by leaving them unprotected at a time when unemployment cover has never been needed more.

“Figures released only yesterday by the ABI show that in November 2008 there were 19,105 new unemployment claims on PPI policies.”

The recommendations were first drafted in November, though changes have been made since the original draft was made, including reducing the moratorium to seven days, but it still goes ahead with banning its proposal to ban sales of ‘single premium’ PPI policies.

These involve the full premium being added to the loan up-front, which inflates the borrower’s interest bill, and also tends to lock in customers who may want to change their PPI policy.

Five of the major UK banks have already taken up the recommendation after pressure from the Financial Services Authority (FSA).

The Commission are also enforcing other services involving lenders providing PPI quotes and annual policy statements for customers.

Stephen Sklaroff of the Financial and Leasing Association said: “by preventing customers from protecting their repayments at the time they take out a loan, the Commission has made it much less likely that they will do so at all.

“Many more people will go without the safety-net provided by PPI, just when unemployment is reaching record highs.”

The government have revealed plans to guarantee small businesses £20billion of loans.

In return for a fee, the state will insure banks against companies defaulting on loan repayments. However there are concerns that £20billion won’t be enough for all businesses to share.

Prime Minister Gordon Brown has described the measures as “real help now to deal with specific problems”.

On the other hand, shadow secretary of state for business, Alan Duncan has claimed the move is “too little, too late, too complicated…a small bandage on a massive wound.”

The focus of the plan is a £10billion Working Capital Scheme created to help banks lend capital to small businesses. The government will also guarantee 50% of £20billion short-term loans to businesses who turn over up to £500million.

Lord Mandelson said: “The £10billion injection to banks represents a guarantee to enable them to free up working capital to sustain existing loans and create new ones.
“A condition of [banks] getting the money will be that they negotiate with the government on what capital will be freed up.” He added that some capital freed would be used for new lending.

He admitted that there would be some defaulting on loans, £225million has therefore been set aside to cover repayments that people can’t make.

An Enterprise Guarantee Scheme is also being set up, which will secure up to £1.3billion in additional bank loans to companies that turnover up to £25million.

This means companies will be able to borrow up to £1million 75% of which is guaranteed by the government. The money can be used for working capital eg paying wages, or new investments.

Finally, a £75million Capital for Enterprise Fund specifically for businesses with high levels of debt that have “exhausted traditional forms of financing” has been set up. £50million of this is provided by the government and £25million by major banks.

It is said the government is in discussions with credit insurance providers to provide similar guarantees on money small businesses owe their suppliers. British Chamber of Commerce director-general David Frost said: “businesses are critically in need of cash-flow. Any move to get banks lending again will be seen as good news at this bleak time. A government promise to guarantee individual loans to businesses is not only sensible, it’s crucial.”

Many believe £20billion will not be enough to solve the problem completely, with the Conservatives saying a figure more like £50billion would be more help.

George Osborne said the government was offering a shadow of the scheme the Tories came up with weeks ago, saying: “Let us hope that they will properly implement this Conservative policy rather than a pale imitation, or else they run the risk of repeating the mistakes of their expensive temporary VAT cut and achieving nothing.”

Vince Cable of the Liberal Democrats said: “the government should stop messing around with stunts and wheezes and ensure that the banks owned or part-owned by taxpayers operate as state banks maintaining lending for the economy.”

Brussels has expressed its reservations about the restructuring package put forward by the government to save troubled mortgage lender Northern Rock, including fears that state aid is likely to drag on for too long.

The mortgage lender adopted a business plan allowing it to pay off a £26bn Bank of England loan within three years. It was also ordered to halve its mortgage book by encouraging borrowers to switch to other lenders.

The bank has a three-year guarantee that any savings deposited with it will be backed by the government.

The European Commission’s first assessment of the plan, set out in the European Unions official journal, sys it “doubts whether the size and duration of this down-sizing are sufficient to avoid undue distortions…[or] that… a deeper and more rapid downsizing could not be implemented”.

The regulator has particular concerns that the restructuring plan may run for an unnecessarily long period, that the state aid could have been more limited and that more could be done to compensate rivals over distortions to competition.

Lawyers have said that the commission could order the aid to be repaid if it was found to have been given illegally, but the decision on the rescue would be made in the second half of this year.

The chancellor Alistair Darling is said to be “pretty relaxed” about the commission’s assessment of the rescue plan. How relaxed he will remain is debatable as the EU journal does set out significant concerns about its compatibility with EU state aid rules.

Mr Darling’s officials were quick to maintain that the assessment came as no surprise and was simply part of a standard Brussels procedure when launching a state aid enquiry.

The proposed rescue operation was discussed at every stage with Neelie Kroes, the competition commissioner, and her officials before it was put into action insist the Treasury. Northern Rock was taken into state ownership in February.

Publication in the Official List formally triggers a month-long period in which business rivals and other interested parties can submit comments on the restructuring deal to the commission, although some views may have already gone in.

Labour is in emergency talks to renegotiate over £10m of loans from wealthy businessmen to prevent itself running out of money.

The millionaires, most of whom lent money to Labour in the run-up to the 2005 election, are due to be repaid by the party in the coming months but with the party £20m in the red, they are in no position to do this.

The party is holding combined talks with the lenders to find a single agreement that would enable the Labour to stagger the repayments over nine years. Sources on both sides of the discussions have said that an announcement is just weeks away.

The news is just another kick while Gordon Brown is down, after the Conservatives claimed that the PM had “lost control of the Scottish Labour party”. Wendy Alexander, the party’s leader north of the border, defied the prime minister by calling for an early referendum on Scottish independence.

Chief fundraiser for Labour, Jon Mendelsohn, has been leading talks with representatives of the businessmen, who include curry magnate Sir Gulam Noon, property entrepreneur Sir David Garrard, retail tycoon Richard Caring and former chief executive of Priory healthcare, Chai Patel.

Although most of the dozen millionaires who bankrolled Labour in 2005 have accepted the principle of the negotiations, Biotech entrepreneur Sir Christopher Evans openly asked for his money back and was repaid.

If talks succeed and everyone agrees the terms, the loan repayments will be spread up until 2017.
If talks were to fail it may have severe consequences for the ruling party at time when morale is fading fast. Labour’s general secretary, David Pitt-Watson, pulled out of the position last week because he was concerned about an unincorporated association due to the debts of Labour. Ray Collins, a senior figure in the Transport and General Workers Union is likely to take the position.

As Labour struggles to find funds the opposition’s coffers have been filling up. Conservative fund-raising has reached £11.3m in the fourth quarter last year, compared to £5.9m for Labour, who are relying heavily on the unions who gave the party 77 percent of its funding in those three months.

As the economic squeeze continues to tighten on the UK consumer more and more people are experiencing what they hope will be short term financial problems. This has prompted many consumers to look at ways to help them through these difficulties with loans and overdrafts by far and away the most popular products at the moment. So should you go for a loan or an overdraft?

The key to any financial planning is the bigger picture rather than just finding a short term solution to what could turn into a long term problem. If you are experiencing difficulties at the moment you need to be realistic, you need to be sensible and you need to ensure that the product which you choose is the best option for you. We hereby list some pros and cons for overdrafts and loans :-

Loans

Pros

A fixed loan will ensure that your payments remain constant and you know exactly what is required, when it is required and you can actually see the end picture – the full repayment of the loan.

In general the loan market in the UK is very flexible and normally you will be able to choose the length of the loan period to fit in with your personal situation.

Cons

Many loans will have fairly hefty late payment charges if you either miss you payment date or fall into further financial difficulties. Do not rely on the recent trend of reclaiming charges to cover you if you are charged in the future.

While the trend towards setup charges for loans has diminished as competition has increased, some lenders will still charge you some form of fee for setting up and agreeing the arrangement. You also need to be very wary of companies who require money up front before they agree a loan because very often the loan application will be turned down and you will have lost your money.

Overdrafts

Pros

Overdrafts are a lot more flexible than loans in that you can take out and repay money at your own discretion as long as you do not go over your agreed limit.

Very often an overdraft will be agreed quicker than a loan if you have banked with one company for a number of years. You may also receive a ”free overdraft” facility whereby you are not charged interest on the first £100 you go overdrawn.

Cons

Sometimes overdrafts can be too easy and too accessible with many people suddenly using their overdraft as an extension of their income and adding the facility into their everyday figures.

It can be very easy to use your overdraft facility without actually repaying money and very quickly find yourself up to your limit and probably in more financial trouble than you were when you applied for the overdraft!

If you exceed your overdraft facility you can find yourself on the end of some fairly hefty interest charges, and quickly getting deeper and deeper into trouble.

Summary

While there is no right and wrong option many people find the structure of a loan more favourable with regards to their financial planning, although those who have the discipline to stay within their limits and make repayments might find an overdraft is a better option. Either way it is essential that you know the pros and cons for each product and the implications for your financial well being.

Today, personal loans are offered by various financial institutions and banks. But, these loans cannot be used for business purposes as the risk involved is more. Also, most of the people are not aware of the fact that when they repay their debt before the end of the fixed term, the lenders levy heavy penalties. Nowadays, the interest rates of different personal loans are lower than what it was in the past. For instance, one can borrow 10,000 pounds at a modest interest rate of about 7%. However, most borrowers are fortunate enough to repay their debt before time and hence pay the heavy penalties levied by the lenders.

A personal loan comes under the unsecured loan category as these loans don’t require collateral. On the other hand, due to the risk involved the lender may levy high rate of interest on the loans and also the term of repayment may be less than what you get in a secured loan. You can borrow anything between 500 pounds to 25,000 pounds for a period of 6 months to 5 years. But, this will vary between different lenders and products. The rate of interest which is generally known as Annual Percentage Rate (A.P.R) is levied on the amount borrowed and before taking a personal loan you should compare the different products and their APRs.

Many lenders bury the penalty clause in the terms and conditions by printing them in small letters. Almost 75% of personal loans levy penalties for premature closures and you should analyze whether the loans carries a penalty before signing up the papers. Also, the lenders never provide the details of the penalties exactly and the way of calculating them also differs. Department of Trade and Industry (DTI) recently proclaimed that they are into reforming the Consumer Credit Act and they will also focus on the penalty clause.

The financial institutions like building societies and banks calculate the amount that you pay over the entire term using a format called Rule 78. This method distributes the interest rates unevenly and so the early part of the loan installments are used to cover up more interest and hence it will leave a bigger amount of capital outstanding. Also, the penalties for premature closure are also calculated in the same way and hence the consumers cannot never clearly understand how the settlement amount is arrived at.

In addition, the consumers should be aware of the way in which the interest rates are calculated on the personal loans. If the interest rate is fixed, then it will remain the same all through the year. But, if the rate presented is a variable rate then it may fall or rise in line with the base rate changes throughout the term. So, the borrower should know the type of interest rate and the redemption penalties before going for the loan. Otherwise, they may end up paying more than what the other reliable financial institutions charge and it may also guzzle a major part of their hard earned money.

You may need professional advice when arranging your mortgage loan, unless you are a competent financial advisor or broker. UK mortgages are financed exclusively by banks or financial organisations. There is no market interference by government bodies. Hence, the mortgage market in UK is highly competitive. Also, you can choose from a variety of mortgages, the type that suits you the best.

Most mortgages offered by UK companies work on a variable interest rate. Normally, the variable rate is fixed by the Bank of England. As the market is competitive, the lenders are keen to offer a rate that is somewhat lesser than the variable rate. Also, some companies offer a discount rate on mortgage loans. The discount rates may be applied for first few years of the mortgage. So, this makes the initial mortgage payments lesser than the payments made later. Even some lenders proffer capped rates. This thoroughly benefits the borrower, as the capped rate will be the maximum rate that the borrower will be paying even when the variable interest rates increases to a larger extent.

Some lenders give a cash-back incentive on the mortgages. These cash-back incentives are calculated with respect to the principal borrowed amount. The borrower will receive a certain percentage of the borrowed amount at the end of the mortgage. If a borrower wishes to close his mortgages earlier than the fixed term, then he has to pay pre-payment penalties. That is, he will be charged an additional amount along with the total amount to be paid towards the mortgages. Normally, the pre-payment penalty is calculated as some percentage of the outstanding amount.

There is another type of UK mortgage – a self certification mortgage. Mostly self employed persons who have no means to prove their income opt for this mortgage. If the borrower borrows an amount less than the value of the house and he makes a down payment, then the lender will offer him the self-cert mortgage. But, these mortgages carry higher rate of interest due to the risks involved for the lender.

In a fixed interest mortgage, you will get a fixed interest rate for the whole period of the mortgage or for some years. Normally, 2 to 5 years is the period for fixed interest mortgages. The borrowers can rest assured that the interest rates will not fluctuate and they have to pay only a fixed monthly payment. But, the fixed interest rate is offered at a slightly higher rate of interest and hence if the interest rate falls, then the borrower may feel sorry for his decision.

So, while getting a mortgage for your home, evaluate the risks involved and your repayment capacity. If you can repay the monthly installments without any delay, then only you will have peace of mind. Otherwise, you may get a bad credit history. So, you should thoroughly study every detail before getting mortgage. Also, if you feel that your rate of interest on your mortgage offered by the company is higher than the prevailing market rate, you can refinance your mortgage from some other company.

In recent years, arranging a loan has become very popular in UK as it has now become easier to borrow money. Consumer finance has become very popular, aided by variety of loans available with low interest rates. Secured loans are widely accepted as they suit the needs of the people who own property. Secured finance provides excellent value for the money and also affordability by all classes of people. A variety of lenders offer secured loans to consumers providing wide choice in selecting secure loans and applying for them.

The amount to be borrowed with the help of secured loans is based on the value of equity which is available on the property. In other words, market value minus outstanding mortgage or any loan is the amount available. Secured loan provide plenty of benefits. They are the best available cost effective options to arrange for finance. Unlike other unsecured and standard loans, secured loans carry lower interest rate as the risk involved and borne by the lender is less as the loan is arranged against a security or asset.

Compared to unsecured loans, secured loans have high borrowing levels though the amount to be borrowed depends on equity. Thousand of pounds or even much larger amount of finance can be borrowed with the help of secured loans to meet any purpose or need. Under the secured loan the repayment period is very lengthy as compared to unsecured loans, resulting in low monthly repayments.

Secured loans are easily accessible even for the people with bad or poor credit unlike unsecured standard loan. Lenders face less risk with secured loans as the loans are arranged against a security or asset. Lenders do not mind bad credit for sanctioning finance. People with even tarnished credit history can still manage to enjoy lower rate of repayment as bad credit loans are easily available at reasonable rates.

Most people choose secured loans for consolidation of their loans and credit. Usually, for most people, large amounts of pay outs go for high credit loans and credit cards. Secured loans convert all expensive credit loans into single convenient consolidated loan, making it easier to repay in one single repayment ever month and just pay settle for a single interest rate. Bad credit secured loans can be used to pay off debts and thereby repair and improve the credit score.

All the major lending companies provide secure loans easily available through online. Just by booking through the internet and browsing the loan information a best deal can be clinched at competitive and affordable rates of interest. It is always wise to read the terms and conditions as well as interest rates by comparing between various available loan deals in the market to get a cheap and best deal of secured loan and an affordable rate of interest.

Secured loans make the life more comfortable by making available finance for funding or purchasing or to consolidate loans and credit. The loan repayments are on the lower side with reduce rate of interest. By harnessing the internet power it is very easy to find, compare and apply secured loans in a simple and straight forward manner, speedily at total ease and convenience. Competitive deals of loans are possible over internet giving better choice for greater value of borrowed finance.

Home equity loan also known as a second mortgage is a loan that allows the house owners to refinance their first mortgage. If you have taken fixed rate mortgage on your house property few years back, then the interest rates may be higher than the prevailing rates. So, you may want to get rid of the loans within a shorter period in order to save some money and also due to the desire of getting some extra cash to meet your financial problems.

If you are availing an equity loan, there are two options available – you can get a second mortgage or you can get a line of credit. The choice has to be made by you and also it depends on the way you will be spending your money. If you are opting for a second mortgage, then you will get a huge amount with a fixed rate of interest and you have to repay the loan in installments for a fixed period. You can also use the extra money you get out of your second mortgage for home renovation, education, vacation etc.

Line of credit is just like getting money out of your credit card. You will get approval for a certain sum and you can draw the cash whenever you felt the need and the current interest rate will be charged. A home equity loan is an easy source of cash for those who are tired of facing financial crunch now and then. Sometimes, the interest rates charged on your equity loan is slightly higher than your first mortgage, but they are much lesser than the interest rates charged on personal loans or credit card. If you are consolidating your debts through home equity, then this will also provide you with some extra savings on the monthly installments. You can collect this money to pay a part of your principal in order to reduce your mortgage burden.

You will be also benefited with the tax deductibility that comes along with the home equity loan. So, you can opt for equity loan for some major expenditure like education, consumer goods and trips. But, those who are spendthrift should not opt for home equity loan because it also carries some risks. If they are unable to pay their monthly dues, they may have to lose their home or they have to face big penalties. Also, some equity loans come with a mandatory lump sum payment to be made at the end of the mortgage term. Though a home equity loan is a great tool to finance your urgent needs, you should not fall into the bait of easy money and should plan before hand to avoid bad credit history.

As we start to leave the Christmas period behind, January will see further financial pressure for many in the UK with credit cards statements dropping through the door in the New Year. Maybe you should have saved a little more throughout the year? Maybe you should have gone a little easier on the presents? But it’s all too late now…….or is it.

While the credit crunch has affected much of the financial industry, with many mortgage and credit card offers being pulled, there are still some alternatives out there if you look around. Why pay sky high credit card interest rates when you can take out a longer term loan on payment terms which you can afford?

While the credit card companies would much rather that you kept your credit card balance high, thereby giving them a long term income stream and ensuring that you are in their grasp, the banks may have something to say about this. As interest rates in the UK start to fall we are seeing many of the credit card companies refusing to pass these on to customers, opening the door for the banks to step in.

While it may scare many people to actually look at the extent of their credit card debt, you need to attack these issues head on before they get out of control. Would a more structured long term approach not suit you better? A situation where you could actually see your balance coming down rather than just covering the debt interest each month?

Getting yourself back on the road to financial recovery may take a little time, it may be difficult at first but rest assured it will be a whole lot worse the longer that you leave it. Do not pay high interest rates where there is no need, do not bury your head in the sand and hope it will come right, look up, look forward and be sensible.

Irrational spending is impossible to predict, but a more structured debt repayment plan can give you peace of mind, reduce the pressure on you and ensure that you do not fall into the same trap again. Or at least that is the plan!