Is It Probable That Lower Cost Loans Be On The Table Again?
With the MPC (Monetary Policy Commitee) choosing not to raise interest rates again, a great many people are bewildered as to why the rates for all types of loans and finance have in fact been more costly over the last two years than they have been for a long time. This is due to a number of reasons, and the following article should help you understand why.
Too few lenders
Because of the global credit crunch and the issues resulting from lump sum Payment Protection Insurance (PPI), there are now fewer financiers in the market place. The mis-selling of PPI has resulted in an enormous concern for the UK loans industry, as a majority of lenders were let’s say over enthusiastic in their approach to selling this insurance policy. They chose not to explain the product they were selling and in a great many cases led the applicant to believe that PPI was compulsary. Also for the homeowner loans industry most lenders sold their PPI insurance as a lump sum payment that offered cover for the first 5 years of their loan. However this premium was usually added to the loan amount and therefore the applicant was charged interest on the premium for the term of the loan (up to 25 years). The government made changes to the law governing the sale of this type of insurancePPI which left the lenders exposed to court action, not just on new sales of this product but also on previous sales. This opened the flood gates and in most cases the loan companies were being forced to recompense the premium and any interest that had been incurred on the premium. Because of this numerous loan companies were forced out of business.
Lack of confidence in the economy
As a result of the state of the country the small number lenders that are still available are worried that they will be unable to their money back. This uncertainty has caused them to change their philosophy and re-think their lending policy and also the rates they charge in order to reduce their exposure. This double edged philosophy has meant that they will not lend to as many people, and the ones that do qualify are being asked to pay more expensive rates.
Will we see low rate loans return to the market?
Which could result in a rate war where the main benefactors will be the applicants as they see more competitive rates. Another likelihood is that the providers may need to become more forgiving with their criteria, in order to sign up their portion of loans. This will help to make it easier for those of us that have had financial problems in the past to secure the loans for bad credit we need to help get our finances back on track.
