Barclays bank has decided to fight the ban on the sale of Payment Protection Insurance alongside credit cards and loans imposed by the Competition Commission. This is despite a damning report published earlier this year which accused banks of making 1.4 billion per year in excess profits from selling the insurance.

The insurance is supposed to protect borrowers who go off work through illness, an accident or redundancy by maintaining the monthly payments on their loans and credit cards. The problem has been that around 2 million people have been sold this insurance but due to the exclusions on the policies, they would never have been able to make a claim.

And who mis-sold these 2 million policies?

You’ve guessed it – primarily the banks! 99.9% of PPI policies sold to protect a personal loan were sold by banks and 98.5% of policies protecting credit cards were sold by banks. It is estimated that there are some 15 million PPI policies and Barclays was one of the top five sellers. The Commission found that a lender could potentially make a profit of 982% charging on average £1,200 for a policy that cost £20 to provide. No wonder they want the ban lifted. They want their cash cow back!

But can they be trusted to ethically sell PPI alongside loans and credit cards? Well if history has anything to go by, the answer is a resounding NO.

We say the Competition Commission is most certainly right.

As far back as 2002 the financial regulator was warned about the Payment Protection Insurance (PPI) racket being operated by financial services companies and the banks in particular. But it has taken an investigation by the Competition Commission into the £4 billion per year market to come up with new rules about how the insurance should be sold.

From May this year, the sale of single premium insurance policies on unsecured loans will be halted. And from October 2010 no lender will be able to sell this type of insurance at the same time as selling a loan or credit card. For years these policies have been sold and the cost of the insurance added to the initial loan taken out. This has meant that the borrower has paid interest not only on the loan itself but also the entire cost of the insurance.

But the biggest problem has been that these policies have numerous “exclusions” which invalidate claims in specified circumstances. The problem is that hitherto many policies have been sold to people who would never be able to claim by virtue of the type of their employment. This means they may have spent thousands on worthless insurance. No wonder the Financial Ombudsman is being kept busy.

The new rules say that PPI can be sold but lenders will have to wait 7 days before approaching the borrower to take out PPI although if the customer requests for cover, it can then be sold 24 hours after the loan has been put in place.

The purpose of these delays is to avoid the borrower from being pressurised at point of loan sale to take the insurance and thereby allow the borrower time to search the market for a competitive quote. The changes will also make the variety of PPI which operates on a renewable monthly premium far more popular. And this, in our view, is as it should be.

You will therefore not be surprised to learn that Brokers Online only promotes renewable monthly premium Payment Protection Insurance with a policy which is organised by British Insurance, one of the market leaders.

By Richard Norfolk

In our present consumer driven society, problem debts give many people sleepless nights. Worrying day after day about whether you will be able to meet your commitments is no way to ensure a peaceful life. Lenders abound of course, offering loans at varying rates and in some cases making the problem more acute by charging interest at very high levels. Is there any way out of continually paying more but getting less because interest costs pile up and have to be repaid?

The answer is yes, in the form of credit unions. You have probably never heard of them but they are well worth investigating if you are in need of financial help. You are likely to be very pleasantly surprised.

Credit Unions, under the umbrella of ABCUL (Association of British Credit Unions), are best described as financial co-operatives, working on a non-profit basis on behalf of groups of members who have a common ‘bond’. This bond may be where they live or work, or membership of a church or trade union – something which ties them together as a recognisable group.

The members own and control the credit union, working within laws laid down to protect them all. They are responsible for the election of a board of volunteer directors who run the union for their benefit.

They will offer savings facilities which are very flexible, allowing members to save as much as they wish whenever they want to. This can be paid in via designated local places such as shops or even direct from wages. An annual dividend will be paid on the amount saved; this is usually around 2-3% but can be anything up to 8%. Child Trust Fund vouchers can also be used, through an arrangement with the Scottish Friendly Society.

Loans are made available to members at very reasonable rates, usually for up to 5 years unsecured or 10 years secured. The charge can be expected to be around 1% per month on the reducing balance of the loan, rather than on the total loan taken out. This gives an APR of 12.7%, which in much simpler terms means that for £1000 borrowed over 1 year, the total repayment would be £1067. You are unlikely to get a rate anywhere near this from the usual ‘high street’ lenders. Life insurance is provided free of charge to cover the outstanding loan if you reach your ‘best before date’ with payments still to be made!

The loan charges are such that you may well find that it would pay to borrow from the credit union to pay off an existing debt, and then repay the loan at the union’s much lower rate. Note also that there are no additional charges if you are able to pay off the loan early.

Another not so obvious advantage of the credit union is that the operation is totally local, so that the money is kept within the local community. This is better than if the funds are whisked away to a relatively anonymous ‘head office’ which is probably located in a city at the other end of the country.

Details of credit union operations and on how to start a credit union in your area, can be obtained on www.abcul.org, email at info@abcul.org or telephone 0161 832 3694.To reassure you about the status of this organisation, many facts are provided at this website which serve to show its international coverage.

A listing of existing credit unions is given and you may be disappointed to find that there is not one in your area, but don’t despair – there are answers. In the first place you should check if the union nearest to you is not fully subscribed and that you do qualify under the ‘common bond’ requirement. Also, you may well find that the ‘boundaries’ of
common bonds are being extended to cover larger numbers: an expansion could be in line for your area, or you may be able to convince an existing union to do so.

Failing this, why not consider starting your own credit union. You can make a start by going to the ABCUL website and that of the Financial Services Authority at www.fsa.gov.uk and noting the requirements for starting a new Credit Union. These are quite detailed and cover a broad area but don’t panic. Plenty of people have been here before you, to start up their own.

Very briefly, to start your own credit union you need to know that to establish your union is likely to take 1 to 3 years and within the common bond you have decided upon, you initially need a minimum of 21 members. Then you will have to arrange and follow up your publicity drive to establish the demand in your area.

You would be wise to join ABCUL once you have enough backing to ensure that the project is going ahead. This will give you access to a large amount of very relevant information from ABCUL information services as well as a full manual providing guidance on how to progress. Also see the FSA website mentioned above to find out what you need for FSA approval before you can proceed further.

Members will have to choose the directors, who will require training to enable them to run the union. They will need to investigate sponsorship and obtain promises from local organisations to provide funds to cover the early years of the operation. These costs can be as high as £70,000 in the first 3 years. This could be a daunting sum, but ABCUL make the point that one of their objectives is the education of their members in the wise use of money – surely a very worthy aim. Membership in the UK (where the association started in 1979) is given as 600,000; worldwide there are said to be 40,258 credit unions in 79 countries with 118 million members in total. In Ireland (founded 1958) the coverage is given as 50% of the population and in the USA and Australia as 25%.

You can certainly proceed with confidence in the organisation!

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Author: Richard Norfolk

Student life is usually gregarious, with plenty of like-minded company to relieve the possible tedium of study. However, when it comes to dealing with debt, each student has to sort out his own salvation. The theory says that after graduation, the students of today will be the high earners of tomorrow. Doubtless in some cases this is correct but……..

The unavoidable expenditure on student loans to cope with day to day living costs, plus the credit card bills and overdrafts which occur when those costs become too great, have a way of accumulating. This results in students leaving university with, on average, debts reaching £10,000 or more. This is the current debt level. Expectations are that this will increase threefold within a very few years.

Unfortunately no-one can bank on a highly paid job to clear their debts immediately on leaving university. Even if such a job is ‘in the offing’ there is likely to be a significant delay before the actual earning power comes to fruition. In the meantime, i.e. when first starting at university, it is necessary to evaluate the costs you will be facing and plan how best to cope with them.

First – the cost of the course itself, that is the tuition fees. Below a certain level of family income there will be nothing to pay; above this level there is a sliding scale. In earlier years the total cost was paid by the government but this had to be altered when increasing numbers attending university pushed the total costs upwards. It was also claimed that increased earnings as a result of gaining a degree would leave ex-students better able to pay their costs during their working years.

Currently there is however a ceiling on payments, which restricts the value of same to 25% of the cost of the course. This is still a significant sum at around £4,000 but thankfully any balance will be paid by the government.

Don’t forget that this cost is purely to pay for your proportion of the course work – day to day living costs have still to be covered. This and any other needs should be discussed with your Local Education Authority as soon as you know what your tuition fees will be.

The LEA will then calculate the value of loans available to you. You then contact the student loans company and arrange for the necessary funds to be paid into your account ready for the start of the new student year. These are unsecured and will be provided at an interest rate which ties in with inflation, and will not be repayable until the end of the tax year after you graduate.

At this point the repayment threshold comes into operation, so that no repayment will be required until your earnings reach the specified level. Even then your repayments will not (under present legislation) exceed the actual amount borrowed, and will be set at a value that is suitable for your earnings level. If you should decide that despite your educational achievements, the life of an impoverished artist (or other poorly paid artisan) would best suit you and your earnings never reach the threshold figure, then, if you reach the age of 65 without starving to death, your debt will be written off!

So much for student loans – what else is available to you? Credit cards are an obvious source of credit (otherwise they would be called by a different name) but they really should be avoided if possible. With no special terms for students in most cases, the interest rates are high and the amount of credit available to students is low. A lot of money can easily be spent paying interest charges whilst having a maximum debit balance, which makes you pay out regularly but allows you to spend nothing.

A bank loan is another possibility but this too is dangerous ground. The possibility of an interest free student overdraft of £2000 is very attractive, but go just over the limit and the rules will be applied rigorously. This means you are likely to be hit by a very high interest rate PLUS charges for an unauthorised overdraft. The whole of any overdraft will have to be paid off as soon as you leave university, otherwise the entire sum will attract interest charges.

You are going to have to exist without real income for quite some time. Arrange your finances to the best of your ability for the avoidance of interest charges and your lifestyle for the avoidance of unnecessary expenditure. It will seem like a long drag but well worth the effort in the long run.

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By Dot Piper

According to the consumer watchdog, Which, about 5 million of the 28 million of us who have been targeted by fraudsters, have lost money as a result. Someone is clearly finding fraud highly profitable.

So what are the most common scams and how do you avoid them? Here are five to be thinking about.

The “Money locked up in an account” scam.

This is a really common fraud. It normally starts with an e mail giving a long and involved sob story about someone or some business, which has a very large amount of money tied up in an account and, through the most unfortunate of circumstances, they cannot get the money out. To do so, they need a UK bank account to have the money paid into. Of course, if you help them they will give you a big slice of the money. And the money is always held in a some obscure country, often in Africa.

Once you have replied and taken the bait, they come up with a story that for the money to be transferred to your account, they need you to send a payment, often thousands, to cover the administration or legal costs of enabling the money transfer. The actual details always change but the essence of the story remains remarkably consistent.

Will the payment arrive and will you ever get your money back? Of course not! In fact after you’ve made a first payment, they’ll ask for more! The up front payment needs to be increased and unless the extra is sent, the money you’ve already sent will be lost. You think you’re now in a catch 22 situation. But if you send more money, we can guarantee you’ll never see it again.

Millions of these emails go out each month, so if you get one delete it.

Boiler Room scams
This is a hard-selling technique to persuade you to buy investments on the promise of great returns that turn out to be worthless. Others sell shares in companies that don’t even exist. There are also related scams which involve investment currency or futures or options.

More often than not the initial contact is by telephone and a typical target will be a middle aged professional man ho has some investment experience. They often trace their targets by examining the share registers of UK quoted companies.

If you receive a cold call from a company trying to sell you investments, ask for their registration number with the Financial Services Authority. If they won’t supply the number, put the phone down. If they give you a number call the FSA’s helpline and check out that the firm is indeed registered (0845 606 1234). Never commit yourself until you are absolutely sure that the company selling the investments is reputable. 9 times out of 10 it will not be – so you have been warned!

Credit Card Fraud
The requirement to use PIN numbers will greatly reduce card fraud. But purchases through the Internet use the “card holder not present”, not PIN numbers.

That means that if a fraudster gets your card details he can happily buy on the Internet and fade into the mist with the goods he has purchased and sell them for cash.

To reduce your chances of being caught by this sort of fraud, you should sign up with Verified by Visa or Mastercard Secure Code. You’ll find further advice on www.getsafeonline.org and www.cardwatch.org.uk.

Phishing
Fraudsters are also very active on the Internet trying to persuade you to divulge details of your bank accounts, PIN numbers and security codes.

The fraud starts with a bogus e mail supposedly from your Bank. The e-mail normally asks to you confirm your account details for security purposes. Sometimes it says that unless you complete the confirmation, your account will be frozen. But security is the least of their aims – once they have your details, they’ll simple empty your account!

Be aware that Banks will never ask you to send details of your accounts etc to them by e-mail. If for any obscure reason they did need some confidential information, they would ask you to visit a Branch.

Identity Theft
It has been estimated that an identity theft takes place in the UK every four minutes.

If fraudsters can pretend to be you, they can apply for credit and open bank accounts in your name. This inevitably leaves a trail of debt and criminal activity all conducted in your name.

All they need is a credit card statement and a utility bill in your name. Watch out for the bin men! Better still, buy a shredding machine and shred any personal letters, bills and documents you want to dispose of.

Author: Adrian Taylor

Forget life’s luxuries, with the cost of even the bare essentials spiralling ever upwards, credit cards and loans are now the preferred option to cover day-to-day expenses. But with ever increasing interest rates, credit unions offer a real alternative – especially if your credit rating is too low to obtain credit via the ‘normal’ means.

Credit unions are controlled by their members and by operating as financial co-operatives, provide low-cost loans and attractive flexible financial products to their members by combining savings.

To become a member of a credit union, you have to fulfil the criteria of what is known as a ‘common bond’. Simply put, a ‘common bond’ is having something in common with the existing members of the union and that could be living in the same area as existing members, belonging to the same organisation/association or being a work colleague of an existing member.

As such, even if you have poor credit rating or are not a regular saver, a credit union may accept you as a member whereas a larger financial institution may not.

Both regular and irregular savers are welcomed by credit unions and the aim is that all savers – whether regular savers or not, are paid the same percentage on their savings as a yearly dividend. Typical this is 2 to 3% but as the rate paid is dependent on profits, this can be as much as 8%.

There are no restrictions on the amount you save and as such, you can pay as little or as much as you like. The frequency at which you make payments is also flexible and whether you pay in weekly or monthly or whenever you can, payments can be made at your convenience – whether at local shops or handy collection points. Payments can also be taken directly from your wages.

As long as you can prove you are able to save you can borrow money based on the amount you are able to repay comfortably and all services can be tailored to your circumstances and requirements.

In keeping with all mutual societies, although each credit union must ensure that enough money is available to ensure financial stability, the credit union itself is a non-profit organisation. Any profits made are used to reduce the rates of interest at which money can be borrowed and to increase the rates of interest paid on savings.

For loan repayments, the typical interest rate is only 6% with interest rates capped to 1% per month. So this means that a loan of £1000 can incur no more than £10 of interest per month. Members can also benefit from free life insurance.

Credit unions are governed by various legislation, most notably the Credit Unions Act 1979. This specifies that their accounts must by audited on an annual basis by a qualified auditor, that adequate insurance is in place against theft and fraud and sets out the objectives of the credit union.

Also to safeguard the future of the credit union and the member’s savings, all savings cannot be lent out and the remaining money must not be invested in high-risk ventures. Any residual money must be invested in government or similar reliable investments or must be put into bank deposit accounts. This also ensures that the money can be returned as and when needed.

Key points to bear in mind when considering joining a credit union

· You must meet the common bond requirements – either yourself or be closely related to an existing member that meets the requirements. You cannot therefore join whichever credit union you feel is most suitable for you.

· Although rules vary from credit union to credit union, you generally have to save money before obtaining a loan so a credit union is not a simple cheaper alternative to a bank loan etc.

· Regardless of whether you need money for your business, all saving or borrowing with a credit union must be done by an individual member and not in the name of the business.

· Cancelled checks are not retuned to you by some credit unions.

· As a rule, credit unions have few branches and very rarely any ATMs.

· The services offered by your credit union may be limited when compared to your local bank so ensure you know what is on offer. It may be more advantageous to maintain accounts at both your credit union and your bank.

To prevent the credit union movement within the UK from growing in size or competing with the products offered by the various banks or profit making organizations, restrictions are imposed by law to ensure that the movement remains relatively small scale.

To obtain a list of credit unions in your area, contact your local council or citizen’s advice bureau who should be able to provide the necessary information. Alternatively if you or your partner are employed, there may be credit unions that cover your industry. If so, your trade union representative or payroll department should be your first port of call.

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There a clear signs that traders in the City are expecting interest rates to rise by 0.5% by December this year. The Bank of England tends to make a series of small interest rate changes rather than one big change, so watch out for the first 0.25% rise around August.

Mortgage rates are already beginning to react with the rates for two and three year fixed rate mortgages rising. The rates on loans and credit cards are generally variable, so these aren’t likely to rise until the Bank of England moves.

It’s all because inflation is coming under pressure. The target for inflation is 2% per annum but with energy prices high, and likely to soar even further, we are beginning to see the knock on effect on prices of goods and services across the economy. And despite fuel bills siphoning money from the man in the street, new car registrations are up 7% in the year to March, industrial orders rose more than 13% and business confidence improved again last month (April). Even America the economy is experiencing surprising levels of activity.

All this is good news for Britain’s economy. The annual rate of exports has risen almost 20% virtually matched by imports. The major quarterly survey of the economy suggests that growth will remain strong.

Economic figures are all well and good, but for the man and woman in the street, it’s the housing market that is perhaps the key barometer. Here the current news is good for homeowners, but perhaps less good for those aspiring to get on the housing ladder.

Currently, the housing market is buoyant. Prices rose another 2% in April according to the Halifax, meaning that they are now some 10% higher than over the same time last year.

The problem is that sentiment in the housing market is very fickle. As soon as we get the first interest rate rise, watch the buyers dive for cover. A rise in August followed by another in early autumn, will probably cause the housing market to stall. As we all know, forecasts eighteen months ago that the housing market was in for a crash proved false – and we’re still not expecting prices to fall heavily. But it’s the property hot spots that will bear the brunt of any slow down. They’ll be the first to experience a slow down and a dose of realism in respect of prices.

At the moment nationally, the average house is being sold at around 95% of its asking price. When the interest rate rises emerge, we expect to see this percentage fall to just under 90% and asking prices will trim as a result.

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According to the Competition Commission, there are still doorstep loan sharks patrolling estates and charging up to 1,000% interest per year for loans. The average is apparently, 177% per year! At last the Competition Commission plans to cull them.

Apparently around 2 million Britons are falling prey to these sharks. Many are those on the lowest incomes and with household budgets stretched to the limit. But no matter what their circumstances, interest at rates averaging 177% is nothing short of criminal.

The Commission is planning to force the so-called home credit industry to clean up its act by forcing the lenders to clearly spell out for their clients, what the money or credit really costs them. And if lenders don’t introduce more reasonable interest rates, the Commission is planning to set a maximum rate, enforced by law.

Their hope is that faced with the clenched fist of law, the industry will act reasonably.

The home credit industry is dominated by five large companies such as Provident Financial. But there are thought to be around 500 other lenders in the market. They specialise in providing credit to people who the mainline lenders have turned away. Repayments are collected weekly or fortnightly on the doorstep from the customers’ homes.

We appreciate that this means that the lenders will experience significant levels of bad debt and the collection cost are high, but in our view, loans and credit on these terms will only serve to push their clients deeper into the financial quagmire.

Financial Provident is the biggest lender in the home credit with more than half of the market. I wonder if they consider their credit card with a 70% interest ticket, to be good value? On the surface of it they do, as their spokesman said, “Customers are not being overcharged for their home credit loans, nor is the home credit sector making excessive profits”.

The Competition Commission want customers to be given clear information on the full cost of the loans. They hope that once they appreciate the cost, they’ll think more than twice. They’re also hoping to encourage more price competition amongst the existing players in the market.

The Commissions provisional proposals are due out later this summer. We say to the Commissions’ chairman, Peter Freeman, make sure you’re not a moment late!

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If you want a loan, one of the first issues you’ll have to decide is whether you want a secured or unsecured loan. The decision is rarely straightforward so here’s a few pointers.

Let’s start off making sure you know the difference between the two sorts of loan.

With a secured loan, you give the lender the right to register a legal charge on your property at HM Land Registry. As most people have a mortgage that is secured by a first charge on your property, the loan company agrees to take a charge that ranks behind the first charge. This means that if your home is sold, then the sale proceeds would first be used to repay the mortgage and then the remainder becomes available to repay the second charge (and any other registered charges). Then, when all the charges have been repaid, you receive the balance of the sale proceeds.

The central point you have to appreciate about any secured borrowing, is that if you default on the repayments, then the lender automatically has the right to apply to the Courts to repossess your home and sell it to recover the money they are owed. In this context, you need to think very carefully before you agree to such a charge.

With an unsecured loan, you don’t provide the lender with any security. As such, the loan becomes a more risky venture for the lender as the lender has no automatic route to recover what it is owed.

You will appreciate therefore, that unless you’re a homeowner you don’t have to decide between a secured or unsecured loan. As you have no property, you could only qualify for an unsecured loan.

As a general guide, unsecured loans are available from £500 up to £15,000 (sometimes £25,000) and the repayment periods range from 3 to 12 years. As these loans are more risky for the lenders, then on a like for like basis, they charge a higher rate of interest compared to a secured loan. Interest rate premiums of between 1% and 3% aren’t unusual and if you have a poor credit record your application is quite likely to be declined.

Lenders are far more relaxed if you agree to a secured loan. Typically the amounts they’ll lend are greater ranging from £5,000 to £75,000, and even more. And they’ll allow you to spread your repayments over a much longer period – 10, 15, 20 and 25 years are common. The interest rate you’re charged will then depend on your credit rating, so in today’s market this could be as low as 6.7% if you have a good track record - but as high as 18% to 20% if you have severe credit problems.

These days around 50% of homeowners have some form of impairment on their credit record. This means that even if they want an unsecured loan they’re probably going to be declined. In these circumstances the only option available will be a secured loan and even then, they won’t qualify for the lowest interest rates.

The problem is that even though your instinct tells you to shop around for the best deal, if you do and in the process make multiple loan applications, you’ll actually damage your credit rating. That’s because each application you make is recorded by the big credit agencies such as Experian, and the more applications they record, the lower your credit rating becomes. As a result the interest rates you are quoted will tend to increase with each successive application and in the end all you will get is outright refusals. Not only that, but your now worsened credit score could stay with you for years making your financial life very difficult.

So what’s the solution? Your best bet is to use a loan broker. With their knowledge of the loan market they will know which lender is most likely to accept you at the best possible interest rates. This means that you avoid making multiple loan applications and are assured a good deal.

And where can you find these brokers? Online of course! Just search for “secured loan” and you’ll find lots to choose from. Even better, make life simple - click on “Loans” on this web site and we’ll find you a great loans deal!

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The UK’s 2 million Muslims face an ethical problem when organising their money. Conventional mortgages, loans, credit cards all involve the payment of interest and interest, or “riba” as it is called under Islamic law, is forbidden by the Koran. (See below for a precise definition of “riba” and other Islamic finance words.)

British banks and building societies are increasingly catering for the specialist needs of Muslims through a series of alternative arrangements that adheres to the scriptures in the Koran. Here are just two of them:

Ijara with diminishing Musharaka
This is an Islamic home finance alternative to a mortgage that has been adopted by several banks and building societies. Musharaka basically means partnership. Under this financial concept, the financial institution buys the house and becomes its legal owner. Then over a set period, say 25 years, a monthly payment is made. Each payment includes a charge for rent plus a charge that buys a small proportion of the house itself. It’s a sort of shared equity plan with the proportion of the house being owned by the contract holder, steadily increasing as payments are made. On the final payment the house is owned outright.

Ijara
Here the financial institution buys something that you want, for example a car. The institution then allows you to use it for an agreed period in return for a monthly payment that covers the cost of the institution’s capital. In practice it’s a form of leasing

So where can you arrange Islamic finance? Here are three suggestions:

HSBC is developing a special range of Islamic products under the Amanah brand. These products include home finance plans, commercial finance, home insurance, and various current accounts and pensions. Hussam Sultan, Amanah’s product manager says, ”As a bank, we are not here to moralise or tell our customers that Amanah finance is the way to please Allah. We’re just here to provide them with a choice”.

Over the last year Lloyds TSB has been introducing Islamic products to its branches. 33 branches now sell Islamic products. They say, “It is important for our customers to see that we are following the right procedures. We have a panel of four Islamic scholars who over-see the products. They offer guidance on Islamic law and audit the products”.

The Islamic Bank of Britain has 3 branches in London, 2 in Birmingham, 1 in Manchester and Leicester. They are the only British bank specifically catering for Muslim customers and claim to be totally halal. All their products are approved by their Sharia’a Supervisory Committee – Muslim scholars who are expert in all matters of Islamic finance.

Glossary of various Islamic words used in finance
amanah: Trust, with associated meanings faithfulness, trustworthiness and honesty. As a central secondary meaning, the term also describes a transaction where one party keeps another’s funds or property in trust. This is in fact the most widely used and understood application of the term. It has a long history of use in Islamic commercial law. Amanah can also be used to describe different commercial or financial activities such as deposit taking, custody or goods on consignment.

arbun: Means a form of down payment. A non-refundable deposit paid by the buyer to a seller upon concluding a sale contract, with the provision that the contract will be completed during a prescribed period.

gharar: Means uncertainty. One of three fundamental prohibitions in Islamic finance (the other two being riba and maysir), Gharar is a sophisticated concept that covers certain types of uncertainty or contingency in a contract. The prohibition on gharar is often used as the grounds for criticism of conventional financial practices such as speculation, short selling, and derivatives.

Islamic banking/ Islamic finance/ Islamic financial services: Means financial services that meet the requirements of Islamic law or Shariah. While designed to meet the specific religious requirements of Muslim customers, Islamic banking is not restricted to Muslims: both the service provider and the customer can be non-Muslim as well as Muslim.
ijara: Means an Islamic leasing agreement. Ijarah allows the bank to earn profits by charging rentals on the asset leased to the customer instead of lending money and earning interest. The concept of ijarah is extended to a hire and purchase agreement by Ijarah wa iqtinah.

maysir: Means gambling. Another of three fundamental prohibitions in Islamic finance (the other two being gharar and riba ). The maysir prohibition is often used as the basis for criticism of conventional financial practices such as speculation, conventional insurance and derivatives.

mudarabah: A Mudarabah is an Investment partnership, where capital is provided to one party/entrepreneur (the Mudarib) by an investor (the Rab ul Mal) in order to undertake a business or investment activity. While profits are shared on pre-agreed proportions, any loss of investment is born totally by the investor and the mudarib loses the expected share of income.

mudarib: The mudarib is the investment manager or entrepreneur in a mudarabah (see above), who invests the investor’s money in a project or portfolio in exchange for a share of the profits. For example, a mudarabah is essentially similar to a diversified pool of assets held in a Discretionary Managed Asset Portfolio.

murabaha: means purchase and resale. Rather than lending money, the capital provider purchases the desired asset or commodity (for which a loan would otherwise have been taken out) from a third party and resells it at a higher predetermined price to the capital user. By paying this higher price by instalments, the capital user effectively obtains credit without paying interest. (Also see tawarruq.)

musharaka: Means profit and loss sharing. It’s a partnership where profits are shared in pre-agreed proportions whereas the losses are shared in proportion to each partners capital or investment. In a Musharakah, all the partners to the business undertaking contribute funds and have the right, but not the obligation, to exercise executive powers in that undertaking. It is similar to a conventional partnership and the holding of voting stock in a limited company. Musharakah is widely regarded as the purest form of Islamic financing.

riba: Means interest. The legal concept extends beyond interest, but in simple terms riba covers any return of money on money. It doesn’t matter whether the interest is fixed or floating, compounded or simple, and at what the rate is. Under The Islamic tradition Riba is strictly prohibited.

Shariah: Islamic law as disclosed in the Quran and through the example of Prophet Muhammad (PBUH). A Shariah compliant product meets all requirements of Islamic law. A Shariah board is the committee of Islamic scholars available to an Islamic organisation for guidance and supervision for the development of Shariah compliant products.

Shariah advisor: Means an independent professional, usually a classically trained Islamic legal scholar, who advises an Islamic financial organisation on the compliance of its products and services with Islamic law, the Shariah. While some Islamic organisations consult individual Shariah advisors, most establish a committee of Shariah advisors (often known as a Shariah committee or Shariah board).

Shariah compliant: Means an act or activity that observes the requirements of the Shariah, or Islamic law. The term is often used in the Islamic banking industry as a synonym for “Islamic”- for example, Shariah compliant investment or Shariah compliant financing.

sukuk: Similar characteristics to a conventional bond. The difference is that that they are asset backed and a sukuk represents a proportionate beneficial ownership in the underlying asset. The asset is then leased to the client to yield the return on the sukuk.

takaful: Means Islamic insurance. Takaful schemes are designed to avoid the elements of conventional insurance (i.e. interest and gambling) that are so problematic for Muslims, by structuring the arrangement as a charitable collective pool of funds based on the idea of mutual assistance.

tawarruq: This is the reverse murabahah. When used in personal financing, a customer with a genuine need buys something on credit from the bank on a deferred payment basis. That customer then immediately resells it for cash to a third party. The customer thereby obtains cash without taking an interest-based loan.

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One of the ways you can reduce your monthly outgoings is to get a new loan to pay off your existing loans and outstanding credit card balances and indeed, pay off any other outstanding debts. Called a debt consolidation loan, you then pay off the combined loan over a longer period thereby, reducing your monthly payment.

In practice another way of achieving even a greater reduction in monthly outgoings is to re-mortgage and increase the amount you borrow in order to pay off those troublesome debts. The Citizens Advice Bureau (CAB) advise people not to make this decision too lightly saying, “Our Bureaus are seeing people coming in who are being threatened with repossession as they struggle to make payments.”

Whilst the aim of re-mortgaging to restructuring debt is to reduce monthly outgoings, you must be aware that over the years you will end up paying much more. That’s because the mortgage repayments are spread out over a much longer period than a normal loan and throughout that time the interest continues to clock on.

Take someone who needs £25,000 to restructure their existing debts. If they took out a 5 year loan at 6.9%, the monthly repayment would be £492. If they re-mortgaged over 25 years then with a typical re-mortgage deal of 4.85%, their monthly repayment would be £150 less. But the interest cost would soar. Instead of paying £4,510 on the 5 year personal loan, the interest on the additional £25,000 taken out on the re-mortgage would add up to £19,046 over the full 25 years.

So our advice is to ensure you consider a flexible mortgage where you can make overpayments as soon as your financial circumstances improves

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These days, if you apply for any form of loan or credit, the finance industry will inevitably scrutinise your credit history. You’ll hardly have to tell them anything as within a fraction of a second, their computers will lock into your credit file held by one of the big three credit agencies; Equifax, Experian and Callcredit. And you’d be amazed what they know about your finances!

As far as the finance industry is concerned, the more information they can get about you, the better. Their computers then analyse all this information and statistically assess your application.

For years now banks, building societies and other financial institutions have been sending information about your finances to the credit agencies. They know all about all the credit applications you’ve made, the times you’ve missed or been late paying a loan, mortgage or credit card, the balances on your loans and credit cards, whether you pay off the minimum each month and even your credit limits. They’ve also accumulated lots of other information about you culled from the voters’ roll and the public register of court actions where county court judgements are recorded.

Yet despite this mass of information, there is one notable omission. Despite representations to the government, information on any student loans that you may have is not available to the credit agencies. This is because student loans were set up as a debt to the taxpayer, not a commercial business.

Before September 1998, student loans were repaid by mortgage style direct debits to collect loan repayments once the graduate started earning over £15,000. But more than 59,000 of these pre 1998 graduates are understood to be in arrears on these repayments to the tune, on average, of about £2,750 per graduate.

After September 1998, the system of collecting student loans changed to a much more efficient method which avoids the possibility of bad debts. Repayments are now deducted direct from salaries by employers along with income tax and national insurance.

The credit industry argues that it needs information on student loans as they can represent a significant strain on the graduates’ finances – especially as the loans are repaid at the rate of 9% of the graduates’ income in excess of £15,000. And with the introduction of top-up fees, the average student loan is now much bigger. Therefore, to fully assess their financial situation they need this information. This view is supported by a spokesperson from the Finance and Leasing Association Consumer Credit Counselling Service who said, “Knowing whether a young person has a student loan and whether it is being paid back is useful.”

Yet despite the clamour to share the information, the Department for Education and Skills remains steadfast in its decision not to allow the Student Loan Company to share its information with the commercial sector.

Even the Citizens Advice Bureau wants this decision changed arguing that the credit industry needs the student loan information to help ensure that graduates are not taking on so much debt that they can’t afford to maintain repayments.

But for now at least, the situation remains. Credit agencies cannot obtain any history about student loans.

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For providers of loans, mortgages and credit cards, getting to the top of the Best Buy” tables is like hitting the jackpot. The customers can’t get through the door fast enough!

Customers can find the Best Buy tables in press and magazine articles or on certain price comparison web sites - they’re like manner from heaven for those of us wanting to emulate scrooge! Indeed, for finance companies, top positions can make all the difference between success or failure for a new product. So it should come as no surprise to learn that enterprising finance executives are not behind the door when it comes to devising tricks to find a way to the top of the tables.

Take Alliance & Leicester’s Moneyback Loan for instance. This loan product recently hit the top of the Best Buy tables for a £5,000, 3 year loan in a subscription only magazine for finance professionals called Moneyfacts. The interest rate was 5.5%. But the marketing boys at Alliance & Leicester had engineered the product to win top place for a £5,000 loan. The product was structured so that unless a client wanted exactly £5,000, the amount the client ended up paying increased and effectively pushed the product well down in the comparison tables. Not was all it seemed!

In the mortgage market, the Northern Rock Building Society provides another good example. It has a table topping position for it’s two year fixed rate mortgage. But look closer and you’ll find that they’ll only lend on 80% of the property’s value and it has a 1.5% arrangement fee. This means that it only makes sense for those wanting a mortgage of over £175,000 and effectively rules out most first time buyers.

Now take credit cards. Which is the better deal – Cahoots card charging an attractive 11.9% or HSBC’s at 13.9%? The answer is that it depends on how you use your card! Cahoot charge interest right up to the date they receive payment whereas HSBC only charge interest to the date the bill is produced. The result is that if you regularly paid off your bill, HSBC would be cheaper!!

So what is the lesson to be learnt? Lenders are in the market to make profit and you can bet that if on the surface, a loan, mortgage or credit card looks really cheap, there’s going to be a catch somewhere – some angle through which the lender gets more money back.

In our view there’s no such thing as “A Best in Market”. What’s best for you will depend on your personal circumstances and how you want to operate the finance. So by all means look at the “Best Buy” tables but do so with a pinch of scepticism and a healthy regard for the small print! The problem is that most people are not sufficiently experienced to sort out the small print – so our advice is that when considering a significant financial purchase, use a broker. This does not necessarily mean that you’ll have a brokerage fee to pay, many of the brokers work off the commission they receive from the lenders, and their experience could save you a packet.

All the best financial brokers have web sites so our advice is stay online and let your fingers do the searching!

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Most car buyers will have spent hours researching makes and models of car before deciding what to buy. Then four out of ten sign up for the car within 30 minutes of stepping inside the showroom.

But will their diligent research extend to finding the cheapest source of finance? It seems not. Almost 50% of new cars bought privately are bought on finance and nearly 20% sign up for the finance deal offered by the manufacturer. That could turn out to be a costly decision. With manufacturers finance typically costing 13.7% over a 3 year including a 10% deposit, they could be throwing about £1,800 down the drain.

Someone buying a Renault Megane Sport Saloon Privilege costing £16,000, would end up paying £17,384 over the full 3 years. However, if you have a good credit history, you could get a personal unsecured loan at only 5.5% and end up paying just £15,631 – that’ll give you a saving of £1,753. This illustrates that accepting the showroom’s finance instead of shopping around for a low rate loan, can hit your pocket hard – its like giving back the discount we hope you negotiated!

I can hear you telling me about the special finance offers that the manufacturers advertise extensively. Yes there are some good deals but always look closely. Some only relate to specific models and specific specifications, often the cars that the manufacturers are having trouble shifting, and some deals have stings in their tails. Take the current offer on the Volkswagen Polo E2. This deal is advertised at 5.8% with a monthly repayment of £99 over 35 months - but at the end you’ll find you have to make a final balloon payment of £3,750 or trade your E2 in for another Volkswagen.

The manufacturers offer these deals to encourage brand loyalty and a repeat purchase in 3 years time. They know that most people will trade their car in after 3 years rather than find the large balloon payment.

Of course, manufacturer’s finance and cheap personal loans are not the only way you could finance your car.

Hire purchase is the traditional way to pay for your car. Here you pay a deposit usually of at least 10% or trade in your existing car for at least the same value, and then your HP loan for the balance, is secured on your car. Therefore, in practice your car still belongs to the hire purchase company until you have made your final monthly payment.

If you want to sell your car before you’ve completed the HP agreement, there will almost always be an early redemption penalty – often two or three months interest. The HP company will always register its interest in your car with HPI the finance tracking agency. This will effectively mean that you will not be able to sell the car until you have paid off the balance of the HP you owe.

The other alternative is Personal Contract Purchase. These are the deals most dealers will attempt to sell to you. You also agree the annual mileage you expect your car to clock up. Then you pay a deposit and part of the purchase price is deferred until the end of the agreed payback period. Your monthly repayments then pay off the balance and the interest. These schemes are very flexible so you can choose the length of the car loan and the amount of the deposit but interest rates vary considerably between lenders. At the moment the average is about 12.8% - still well above the 5.5% rate for a cheap personal loan.

At the end of a PCP contract you’ll have three options – pay off the deferred sum and keep the car, trade in the car using the trade in value to help pay off the deferred sum and hopefully leaving a balance towards a new car, or hand in the car and walk away with nothing more to pay.

This last option is always subject to the provision that your cars’ condition reflects normal wear and tear and its mileage is in line with the annual mileage you agreed when you purchased it. If the mileage exceeds the agreed mileage, then you’ll have an excess mileage charge to pay based on the number of excess miles. The cost per excess mile will be specified in the PCP agreement.

One of the advantages of PCP is that the guaranteed buy back option, effectively protect customers against excessive depreciation.

As the dealers take a commission for selling the PCP contract you may find that they will give you a bigger discount off the price of your car or even throw in a low cost servicing package or low cost insurance. But you’ll need to do a little homework to ensure that these extra goodies are truly worth the extra interest you’ll have to pay within the PCP contract.

The National Debtline which was set up by the Government to help people in financial trouble, is being overwhelmed by callers. A major Sunday paper has reported that 8 out of 10 of its test calls went unanswered even after holding on whilst the phone rang out for ten minutes. The Debtline recognises the problem reporting that January was its busiest month since its foundation 19 years ago and admits that it failed to answer two thirds of the calls made to its telephone numbers.

The Credit Counselling Service and the Citizens Advice Bureau have also reported record demand with hundreds more calls per day than this time last year. And in the last quarter of 2005, bankruptcies were up by 46% over the same period last year.

If this evidence is anything to go by, there are a lot of people out there realising that they’ve pushed the boat out too far when it come to taking on loans, credit cards and other forms of debt.

For those that simply can’t solve their financial crisis, there are two options. An Individual Voluntary Arrangement (known as IVA’s) and Bankruptcy.

IVA’s are a more lenient form of insolvency whereby you pay back a percentage of what you owe, typically 30 – 50%, over five years. But don’t think that an IVA is an easy way out – it’s a legal agreement between you and your creditors and is administered by a specialist insolvency company. If you don’t keep to the agreement you can be forced into full bankruptcy at any time. But at least after five years it’s all behind you and whilst your credit rating will b battered it won’t be out for the count.

The more extreme option is bankruptcy. Under the 2002 Enterprise Act, bankrupts debts can be discharged after just one year as opposed to the three years it took previously. For this reason, more and more people are biting on the one-year bullet. Everything you own other than the essentials for living, become the property of your receiver to be sold to pay off as best as they can, your creditors. Special arrangements are put in place for your home if this is jointly owned.

Then at the end of the year you are free to go your way to rebuild your financial life. Credit will be impossible to obtain for 12-18 months but after that doors start to open and life gradually get back to normal – just learn from the experience and make sure you don’t repeat you mistakes.

Technocrati Tags[debt] [advice]

Not looking forward to opening the post? Dreading the Bank Statement and the bills? Then the odds are that your finances are becoming a problem.

There’s never a better time like the present to tackle a debt problem – as soon as you get that knotted feeling in your stomach, face the problem head on. Here’s some good practical advice.

Save on your Credit card bills

Savings can be found by switching your balances to cards with lower interest rates. Take advantage of the 0% deals on balance transfers such as those offered by Mint – they’ll give you 10 months interest free but with a 2% balance transfer charge. The best transfer free 0% deal without a balance transfer charge comes from Marks and Spencer. Their deal lasts 6 months.

And ensure the interest you pay on any new purchases is reasonable – better still, now you’re cutting back, try not to use your card at all! If you do expect to use your card a bit, then HSBC offers 0% on balance transfers and new purchase for 9 months but again they have a 2% balance transfer charge.

The credit card companies may hate you for it but regularly move your balances between cards to take full advantage of their deals. When you’re a month off the end of a deal, start looking for a new card and get the balance transferred.

Cut down your monthly expenditure with a Debt Consolidation Loan

The purpose of a Debt Consolidation Loan is to take all your existing loans and credit card balances and roll them together into one loan that gives you a single lower monthly payment. This is achieved by reducing the overall rate of interest you pay and spreading the loan repayments over a longer period of time.

But as with everything there are pitfalls to watch out for. When you’ve transferred the balances to the Debt Consolidation Loan, don’t start reusing the old credit lines you’ve just paid off. If you do, you’ll simply end up digging yourself into another hole and make your situation much worse!

And there’s another aspect to consider. If you’re consolidating into a fairly big loan and you’re a homeowner, the lender may want to secure your debt against your home. If this is the case, think carefully. Remember, if you fail to maintain the agreed repayments, the lender can apply to the courts to force you to sell your house. That would not be good news!

Seek help

There’s lots of help available to assist people resolve their debt problem. A good starting point is the Citizens Advice Bureau. They’ve 3,200 branches throughout the UK so the odds are there is one near you.

Then there’s the National Debtline. This is a free, confidential and totally independent source of advice. Call them on 0808 808 4000 or visit their web site www.nationaldebtline.co.uk. There you find a free information pack with a personal budget section, debt advice and free fact sheets.

You can also try the Foundation for Credit Counselling. Based in Leeds, it’s the umbrella charity for the Consumer Credit Counselling Service. Through its free national telephone service and eight centres, CCCS is able to help people with debt problems wherever they live. Their specialist advisory service has already helped thousands of people in the UK by providing counselling on personal budgeting, advice on the wise use of credit and, where appropriate, managing achievable plans to repay debts. Look up their web site at www.cccs.co.uk or call them on 0800 138 1111.

Debt Management Plans

If you have debts exceeding £5,000 spread across three or more creditors, a debt management plan could be something worth considering. But you’ll need to be able to put aside at least £100 per month to help settle the debts.

Basically, you agree to pay your creditors a single fixed amount each month. A debt management company then receives this sum and allocates it between your creditors. In return, your creditors agree to freeze the money you owe so no more charges or interest pile up.

Some debt management companies charge you a fee for providing this service but others, including the Consumer Credit Counselling Service and the National Debtline, are paid by the creditors.

Individual Voluntary Arrangement

An IVA is a formal agreement made through a county court to pay off your debts. In return for your creditors writing off a portion of your debt, you pay an agreed monthly sum for between 3 and 5 years. You can also make lump sum payments during the period and this will shorten the IVA period.

But IVA’s aren’t for everybody. They’re best suited to people who have a reasonably high level of income or a lump sum to contribute as the set up costs can run into several thousand pounds. And if you fail to maintain the agreed payments you can quickly be made bankrupt. A specialist Insolvency Practitioner handles all the negotiations regarding the value of your debt to be written off and they also administer the payments to your creditors.

Bankruptcy

This must be the very last step but it is a step that more people are choosing – in the last twelve months, bankruptcies have increased by a third.

In a bankruptcy all your assets, including your home, may be sold to repay your creditors. Then after a year, all your debts are written off and you are free to rebuild your finances. But the record of your bankruptcy will remain on your credit history maintained by the big credit agencies such as Experian and Equifax for seven years. This will decimate your credit rating and for the first year or two, make it very difficult to obtain a mortgage or any other form of credit.

Thinking about taking out a loan to pay off all those Xmas excesses? Then check out the cost of the loan you’re offered.

Only recently the Department of Trade and Industry changed the rules forcing lenders to provide clear upfront information to enable borrowers to compare the costs of personal loans and shop around.

The new rules mean that before you sign a loan agreement, lenders have to clearly set out the main elements of the loan: -

· The total amount to be borrowed· The total amount to be repaid
· The frequency of payments and the instalment value
· The APR (Annual Percentage Rate of interest)
· The costs if you pay late or default
· The cost of any early settlement or redemption penalties

It’s worth searching the Best Buy tables to find the lowest APR but remember, if it says APR Typical, it doesn’t necessarily mean that that’s the interest rate you’ll be offered – the rate you’re offered will depend on your personal credit rating. APR Typical simply means that at least two thirds of the lenders new customers can expect to get that rate or cheaper. Your personal credit rating could put you in the one third who are quoted for a more expensive loan!

Although there are more than 30 loans available at the moment with interest rates below 7%, only borrowers with an excellent credit history can expect to qualify for those rates. And as lenders are finding bad debts an increasing problem, it’s becoming even more difficult to qualify for these super low rates. Everybody else will end up paying more.

And if you’re tempted to shop around for the best rates by applying to lots of lenders, take our advice – DON’T.

Most people don’t realise that each time they apply for a loan, a record of each application is added into their credit record which is held by the big credit rating agencies such as Experian. In the lending industry, these loan applications are known as footprints and each successive footprint will reduce your credit rating. This makes it more difficult for you to obtain a cheap loan and in some circumstances, it might mean you are refused altogether.

The other aspect to watch out for is Payment Protection Insurance (PPI). Most lenders will try to persuade you to take out PPI with them but many will fail to point out the full cost of that insurance.

Take a look at the following. The figures show the true costs quoted by each of the lenders for PPI to protect a 3-year loan of £3,000 *

Smile Loan £566.53
Ryanair Personal Loan £486.72
Virgin Personal Loan £486.72
Moneyback bank Personal Loan £417.96
Nationwide Personal Loan £325.44
Northern Rock Personal Loan £228.24

· We’ve calculated these costs by subtracting the full cost quoted for the loan without PPI from the full cost quoted for the same loan but with PPI. Figures provided by Moneysupermarket.

The first point you’ll notice is that the most expensive on this list is almost 150% more expensive than the cheapest - not a lot to Smile about! So is the PPI quoted by Northern Rock, a bargain? We decide to check it out.

We got an independent PPI quote from British Insurance Ltd for a sum to cover the typical monthly loan repayment of £92 per month. The monthly cost they quoted was just £3.63 per month - equivalent to £130.38 over the full 3-year term of the loan we’re comparing. This was a full £97.86 cheaper than Northern Rock.

So even Northern Rock, the cheapest of the 6 we investigated, was ripping us off!

The moral of this story – always buy your Payment Protection Insurance independently and never from your loan provider! And how can you find a really cheap PPI quote from British Insurance? By clicking here of course!

Do you look at the advertisements for loans and savings and wonder what APR, AER and EAR mean? Well you’re not alone. Even bank staff can get confused!

APR is short for “annual percentage rate” and describes the true cost of the money you borrow on loans, mortgages and credit cards. The exact calculation for APR takes into account the interest rate, when the interest is charged (daily, weekly, monthly or annually), all up front fees plus any other costs. The precise mathematics behind the calculation are specified and policed by the Financial Services Authority and all financial institutions have to adhere to it. There are no exclusions! The APR therefore enables you to make direct cost comparisons between the lenders who are offering you money.

So if one lender is offering you a mortgage at 4.8% plus an arrangement fee of £600 and another is offering you an interest rate of 5.2% with a £150 fee, then the APR calculation will show you which of the two mortgages is the cheaper.

When you see the expression X% APR variable, this means that the cost is currently X% but the interest rate is not fixed and can vary.

Then there’s yet another variant - X% APR Typical variable. You’ll almost always see this expression in advertisements for loans. This means that the lender cannot be totally specific about the interest rate they will offer you as the rates they charge varies, normally in response to the amount of money you want to borrow and your personal credit rating. So the calculation for X% APR Typical variable is used to give you an idea of what interest rate you can expect. The addition of the word “Typical” means that at least 66% of their approved applications are offered that rate or cheaper.

Now lets look at EAR. EAR stands for “equivalent annual rate”. It’s used to show the cost of overdrafts and any type of account that can be in credit and also go overdrawn. The calculation shows you the true cost if you use the overdraft facility. Like the APR calculation, EAR takes into account the interest rate and when the interest is charged to the account plus any additional charges. So in most respects APR and EAR achieve the same thing – it’s just that APR’s apply to a product that is entirely a borrowing facility whereas EAR applies to a product, such as a bank current account, that can be in credit or overdrawn.

By the way, both the calculations for APR and EAR exclude any Payment Protection Insurance you’ve decided to buy to run alongside your borrowing facility. That’s because this insurance is always optional and not a cost built in to the lending.

AER is quite different. It’s only used in relation to savings and investments. It’s all about the rate of return you will receive. AER is short for “annual equivalent rate”. It shows the true rate of interest you will have received by the end of the year. It takes into account the regularity of which interest is added to the account as this has a compounding affect upon the interest you receive. The calculation also strips out the affect of any introductory bonuses that disappear after a few months – a popular trick used by institutions to boost their products to the top of the Best Buy tables. AER is a most useful tool.

It’s not easy to remember all this but we hope that the mists of misunderstanding have been removed!

Technocrati Tags[loans] [credit]

Recent research reveals that it’s becoming harder to find a cheap loan. Almost two in five loan applicants will either be refused or will not be offered the headline rate of interest they thought they were applying for. Of these disappointed applicants, around a third will be offered a loan but at a higher rate of interest.

The Office of Fair Trading says that the advertised typical APR (annual percentage rate of interest) must be offered to at least two thirds of applicants - but the calculation of this percentage excludes those who receive an outright refusal. Our advice is that if you are refused don’t give up. Nearly two thirds of rejected applicants were able to get an acceptance when they apply elsewhere.

But there’s a sting in the tail. Each time you apply and are rejected, the information is sent by the loan company to the credit referencing agencies such as Callcredit, Equifax or Experian. This is then recorded on your credit history file as a black mark. Then, when you make an application to a second loan provider, they check the same files and their assessment of your credit worthiness is downgraded due to the black mark. This signals to the second company that you represent a higher risk and they’re only likely to offer you a loan at a higher rate of interest. If you refuse that and approach a third loan company that company will see both the previous two loan applications and their risk assessment of you gets even worse. In practice you’re creating a downward spiralling credit rating fuelled by multiple credit applications.

So, the moral is take care when you apply for a loan. If you have any reason to suspect that you have a problem in your credit history, always apply through a loans broker. They’ll know which loan provider is likely to accept your application at the best available interest rate. That way you should only have to make one application and avoid damaging your overall credit rating for the future.

You can ask for a loans quotation here on Brokers Online without any obligation. Just click here and we’ll take you to our loans information page. From there you can ask for a quote and a Loans Adviser will sort all the details out for you. It’s a fast and efficient service with thousands of contented clients!

Technocrati Tags[loans] [Debt]

In a recent survey, 40% of people with personal debt problems would not tell anyone about their problems. The majority wouldn’t even share them with their partner and fewer still tell their parents. We all know that keeping debt problems a secret from our close ones is a route to domestic disaster, but what should you do?

Well the first thing is you must talk to someone about it - but to whom? A chat with your local Citizens Advice Bureau can point you in the right direction but possibly the best solution is to contact a debt counselling firm. You’ll find plenty on the Internet. Simply search for “debt counselling”. But before you do, gather together the information they’ll need.

Write down details of all your income net of tax and then the full details of your expenses. Don’t leave anything out. Then check your list of expenses against your bank statement. Is there any bank payment that is not covered on your list of expenses? If so add them in. Then list all your debts not forgetting any gas or electricity bills that may be on the way to you. In respect of any loans or HP, note down how much you pay each month, how much is outstanding and how long the loan has remaining to run. If you are a homeowner, you’ll need to do the same for your mortgage. The debt counsellor will also need to know roughly what your house is worth. If any of the loans are secured against you home make a note.

Then consider what expenses can be cut out. Be realistic but ruthless. A survey has shown that smoking, a second car, second holidays and satellite TV are frequently regarded as more important than reducing debt – but if your back is to the wall, there will be no alternative. That’s why it is so essential to be truthful with your partner. The solutions invariably have an impact on all members of the immediate family.

When you’ve done all this you’ll be in a position to make a proper review of your finances and you can see exactly how difficult your position is. You may even be able to work out a solution for yourself. Either way this work is not wasted as all this information will be required by any debt counsellor you talk to.

But, please, whatever you do, seek advice. Don’t put your head in the sand. Debt problems do not solve themselves. You need help and there is plenty out there.

There is also an interesting blog post dealing with debt in the usa - essentially this post is providing links to articles written on other blogs. I checked out some and they really were very good - Carnival of debt reduction