Experts have warned that store cards and credit cards are not offering borrowers a good deal and are designed to encourage overspending rather than sensible money management.

Website Moneyfacts.co.uk is calling for more transparency and control of credit and store cards and has even gone to the Government to call for a better deal for consumers on credit and store cards.

Samantha Owens, principal consultant for banking and economic insight at Moneyfacts, says: “Credit cards form an integral part of the financial services industry and allow customers to transact with convenience, reassurance of safety and added consumer protection. But credit cards also come with the risk of a greater temptation to overspend. It is one of the most expensive forms of credit and has little or no structured repayment mechanism.”

Moneyfacts says there is a real problem with customers’ understanding and while more can be done to educate credit card users. People are too quick to take on unsecured credit without being aware of the consequences.

The website is right – easy unsecured debt encourages people to spend without teaching them the consequences. While a carefully managed credit card can be to your advantage and can be a useful way of making the most of your money, it is easily misused and will get you into debt trouble quickly.

If you are worried about your unsecured lending there are secured options out there to help you. Talk to a financial adviser about what you can do to steer clear to unsecured credit and improve your finances securely and sensibly.

SOURCE: Moneyfacts, 21/01/10

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In this recession there is no doubt that people must be looking to the long-term – that means shying away from unsecured debt that is steadily increasing.

Since the start of September, uSwitch.com has found that another three unsecured personal loan providers have implemented rate hikes of up to 1.2% for new customers. This product ‘tweak’, although seemingly small, could cost personal loan customers an extra £322 in interest paid on a typical loan of £10,000. It says with UK consumers currently forking out £181m in interest daily, this will only add to an already hefty bill.

Without security, the lenders have little to offset risk, so all they can do is increase mortgage rates. They need to make sure that their investment is safe, so they ask you for money each month. This is fine if you can afford it, but if you are already struggling a very small increase could be the straw that breaks the camel’s back – uSwitch.com says the average loan rate has increased from 9.04% to 9.08% in the last year. That might sound like a tiny amount, but it all adds up and could cost dear.

The best way to be sure that your debt will not keep increasing is by using secured finance to consolidate all your unsecured debt away. It would mean lower rates, more flexible terms and a better chance to get on top of your money problems. Because it’s secured debt, the lender has a property or an asset as collateral, so their risk is reduced and they don’t have to keep hitting you with high fees.

Secured debt is always better than unsecured loans. And as time goes on, secured debt will continue top be manageable and shouldn’t impede you making money. Talk to a mortgage adviser about making the most of your secured assets now.

SOURCE: uSwitch.com, 17/09/09

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Two thirds of financial advisers failed to pass all of Which?’s benchmarks for equity release advice in a recent set of Which? mystery shops.

The consumer watchdog’s researchers visited 40 advisers and found that only a third of them met all its benchmarks for good advice.

Overall, five out of 12 equity release specialists passed the Which? test. It also found that eight of 28 financial advisers met the Which? benchmark also.

It says 23 advisers tested failed to carry a fact-find and seven didn’t even ask about the researcher’s income. Some advisers didn’t mention how quickly the debt would grow or discuss the effect of compound interest. One IFA said there was no chance of using up all the equity in the customer’s’ home “unless you live to 150”.

Which? editor Martyn Hocking says: “Which?’s investigation has uncovered some major flaws in the equity release advice process. We’d like to see a tightening up of the advice process.”

The equity release body, Safe Homes Income Plans warns that people have to remember what has been excluded from Which?’s as well as what has been included.

Director general Andrea Rozario says: “Although there are estimated to be over 7000 people who have taken the specialist equity release exams, the fact that Which? has found issues with the processes of some of the 40 advisers reviewed shows there is absolutely no room for complacency.”

If you are considering using your home’s equity as means to fund your retirement, make sure your adviser is fully qualified, has customer testimonies and can prove that they are asking all the right questions when it comes to good equity release advice.

SOURCE: Which?, SHIP, 23/07/09

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Less lenders are offering less unsecured loans and credit cards, meaning more borrowers will have to opt for secured borrowing to get through the downturn.

Latest figures from Moneyfacts.co.uk show a 37% drop over the last two years in the number of lenders offering unsecured personal loans. And of those lenders that remain in the market have increased the cost to borrowers, with the average rate on a £5,000 loan increasing by 3.7%.

Louis Kaszczak, head of Moneyfacts.co.uk, says: “Many lenders are pulling away from unsecured lending as the risk of customers defaulting continues to increase.Borrowers struggling with repayments will inevitably forgo repayments on unsecured lending first, while trying to maintain their secured lending commitments such as their mortgage.

“Those lenders that do remain are charging a much higher rate of interest in order to offset the potential risk – borrowers requiring a £25,000 loan over five years will now have to pay an additional £1,334 in interest, compared with two years ago.”

The website also warns that only two thirds of customers will get the advertised typical rate and as a result, borrowers need to be wary of making too many applications as this will leave a mark on their credit file and may have a detrimental effect on their changes of being accepted for a loan.

Unsecured lending is simply not a viable option right now. It’s too expensive, it’s not competitive and it will not help any borrower. By seeking out some secured finance a borrower can be sure of a lower rate, a better chance of future financial success and a cleaner credit history.

SOURCE: Moneyfacts.co.uk, 15/07/09

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Last week the Government proposed a ban on unsolicited credit card cheques, hoping to put an end to reckless unsecured borrowing and lending.

Credit card cheques have wreaked havoc with the finances of unsuspecting credit card customers for years. One of the big problems has been that people who are under pressure have seen a credit card cheque as an easy way of boosting their bank balance and to buy themselves some breathing space, even if just for a couple of months. Many indebted people have also been using the cheques to make the minimum payment on another card as they continue to juggle an ever increasing pile of debt.

Andrew Hagger of Moneynet.co.uk says people have been unfortunately merely delaying the inevitable and eventually running out of credit, and are then faced with a far larger pile of debt.

He says: “Whilst a credit card cheque may offer a short term fix, it comes at a hefty price. A £500 cheque can easily spiral by an additional £150 in fees and interest in just 12 months. Sending these cheques to people with little financial discipline or will power is akin to posting candy through a school letterbox.

“These cheques are only part of a much larger indebtedness problem in the UK, we need to tackle the individual components, no matter how small, if we are to make a difference.”

Louise Bond, personal finance expert at uSwitch.com, says: “Sending out unsolicited credit card cheques has long since been an act of complete irresponsibility on the part of providers, and finally we have less talk and more action in bringing about an end to this practice.”

Bond says that last year alone, more than 14.1 million UK consumers were sent more than 280 million credit card cheques – 97% of which were unsolicited. She also says that 3.2 million of these cheques were used by consumers spending a staggering £3.6bn. In total, providers a pocketed £571m in handling fees and interest.

Bond adds: “Providers have been capitalising on the lack of understanding amongst consumers around hefty fees associated with this form of credit, which has resulted in the active encouragement of consumers to view them as ‘friendly-freebies’ or a quick fix solution to cash flow problems, and not, as they should be regarded, as a last resort.”

SOURCE: Moneynet.co.uk, uSwitch.com, 02/07/09

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As the recession rolls on rates continue to get worse – and none more so than unsecured loan rates. This is a worry because as they rise, more people could find themselves in more financial difficulty.

In just four weeks, seven unsecured personal loan providers have implemented rate hikes of 1% for new personal loan customers, increasing the average loan rate from 8.74% to 9.07%, according to uSwitch.com.

This may seem like quite a small ‘tweak’, but on a £10,000 loan over five years, the total amount of interest paid will increase from £2,283 to £2,371.

This is a real problem for borrowers that are struggling with several debts and are desperate to consolidate. Last year, 1.3 million consumers used an unsecured personal loan for debt consolidation. If this trend continues throughout 2009, consumers trying to do the right thing and keep all their debts in one place will end up paying almost £100 more in interest compared to this time last year.

Louise Bond, personal finance expert at uSwitch.com says: “Hiking loan rates in the current climate is just making an already difficult situation practically impossible for consumers. Much as we understand that the banks are struggling, these are big hikes for people to swallow. With all eyes on mortgages and savings, it seems unsecured loan providers are slipping under the radar slightly.”

It simply doesn’t pay to take out an unsecured loan. The rates are not competitive, the terms are stringent and the penalties severe. If you are looking to consolidate debt, talk to a financial adviser about taking out secured, sensible debt – it won’t drag you down and will help improve your long-term prospects.

SOURCE: uSwitch.com, 30/06/09

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The latest credit card market analysis from uSwitch.com has revealed that almost 2 million consumers have been rejected for balance transfer deals in the last year.

More and more people are trying to manage their credit card debt the easy way by moving it to another credit card, using the 0% interest until the next card comes along. But the credit merry-go-round is coming to a halt and more people than ever are finding that they are saddled with their debts. For many people, the 0% party really is over as they have reached a dead end.

As a result of lenders saying no, these consumers will have to fork out £535m in interest payments in the next 12 months as they are unable to switch to a new provider. In total, £3.5bn of credit card debt is now stuck on interest bearing credit cards as consumers cannot switch to their next 0% deal.

Across all types of credit card, more than one in ten consumers, totalling 3.32 million, has had an application declined in the past twelve months. This is a clear sign that providers are still acting on the air of caution and only lending to those with a squeaky clean credit record.

Louise Bond, personal finance expert at uSwitch.com comments: “We can’t ignore the fact that the country is in economic turmoil – a situation which has been catalysed by bad consumer credit. The knock on effect for credit card customers is that those with a less than perfect credit history could find themselves being turned down for the next best 0% deal, forcing them to pay interest. This is a huge problem for switchers as these people have accumulated debt based on the fact they do not have to pay interest on it.”

Remember – the knock on effect of rejected credit applications is that it will appear on your credit report and, in the long term, have a negative impact on your score. With this in mind, it’s important to check your report before applying for products to make sure you stand a good chance of being accepted – constantly reapplying to different suppliers will make the situation worse.

If you can’t get another credit card because your debts are too high or your credit score is simply not good enough, seek out some professional financial advice.

SOURCE: uSwitch.com, 24/06/09

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The latest statistics released by the Finance and Leasing Association has showed that unsecured loan business has been significantly hit by the credit crunch.

New business for unsecured lenders dropped by 45% February compared with February 2008, meaning more people are realising the perils of unsecured, expensive borrowing.

Unfortunately, store instalment credit continued to defy the downturn with 8% growth in February. These cards may seem like a good choice at the counter, but not only are the rates highly uncompetitive, also the cards almost become a ticket to shop. In the downturn people have to cut down on risky debt and that means saying no to attractive store cards and unsecured loans.

Total finance provided to consumers in the 12 months to February 2009 by FLA members was £58.2bn, down by 12% on the 12 months to February 2008, also new credit card business was down 11% in February compared with February 2008.

Although risky debt is on the wan, so is secure debt. The FLA says secured loans fell 83% in February 2009 compared with the same month in 2008. This is bad news – secured lending is a much better option than higher rate unsecured lending. Unfortunately, the credit crunch has meant that funding has all but dried up for secured lending.

Geraldine Kilkelly, head of Research and chief economist at the FLA, says “Rising unemployment and low consumer confidence have led to a further drop in unsecured loan new business in the last two months. Our figures show that FLA members have written £660m-worth of new unsecured loan business in the first two months of 2009, compared with £1.1 billion in the same period last year.”

SOURCE: FLA, 30/04/09

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The Office of Fair Trading has launched a investigation into the unsecured financial sector to make sure it is working as it should with borrowers during the recession.

It says its priority is to promote fairness and responsibility between the credit industry and consumers, and advocate choice and competition to ensure that public decisions made to deal with the current crisis do not harm competition in the long term to the detriment of consumers.

Currently, the secured lending market is regulated by the OFT, and until the Financial Services Authority decides to bring secured lending into its jurisdiction, then any decisions it makes will affect secured loans.

John Fingleton, chief executive of the OFT says: “Much of our work is already aligned with the needs of consumers, business and the economy in the current crisis but this strategy will sharpen our financial services focus over the coming year.

“With our focus on credit, we are addressing the area in which there is a real risk of short-term consumer harm while also ensuring that the sector that emerges from the current crisis is competitive and behaves fairly and responsibly towards consumers.

“Looking further forward, the financial services sector that emerges should be characterised both by effective prudential regulation and open markets. Choice and competition involving existing players and new entrants are vital to delivering growth, prosperity and a good deal for consumers. There is a risk that this could be overlooked in the re-design of financial regulations, with high costs for consumers and the economy.”

This is great that the Government plans to make sure that the consumer is not harmed. But the consumer can do a lot themselves – making sure they only deal with secured loans through a reputable, authorised professional, and making sure they can afford what they commit to and making sure that every decision they make is for the long-term.

SOURCE: OFT, 07/04/09

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According to the Government, a total of 46,750 properties in the UK were repossessed during 2008, which means thousands of homeowners and mortgage lenders lost out: because repossession is bad news for everyone.

The Financial Services Authority, the Government’s finance watchdog, has reported a sharp increase of 68% in the number of properties repossessed in 2008 compared with 2007. The regulator’s results also showed a rise in the number of borrowers falling into arrears, up 31% from 2007 to 377,000 at the end of 2008. The number of properties being taken into possession during Q4 2008 was slightly lower than it had been over the previous quarter, but this was still 60% up on Q4 2007.

Roderick Logan, analyst at Datamonitor says: “For borrowers it means losing one’s home and could mean moving to fairly squalid living conditions. For lenders, taking possession of a property is likely to be followed quickly by an auction, where prices are likely to remain below the estimated market value as bidders are looking to make a profit and lenders will have no choice but to sell.

“For the government, there is the political aspect of families losing their homes and the negative press generated if they are perceived to be standing by and allowing it to happen. This has resulted in a raft of government initiatives that are being rolled out to help those borrowers deemed to be most at risk.”

So this is bad news for everyone. So everyone needs to work together to avoid it. And this starts with you, the homeowner. If you are struggling with unsecured debts and bills, you need to talk to your adviser as soon as you can because missing bill payments should be the red alert warning sign. You should also talk to your lender and any local help services available to you, like Citizen’s Advice.

Just do something. Repossession is the worst thing that can happen to a homeowner, so don’t let it happen to you and act before it’s too late – no one wants to see you repossessed.

SOURCE: Datamonitor, FSA, 25/03/09

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