Personal Finance - Searching for objects of desire.
Don't go cap in hand to your bank manager without checking the web.
Don't go cap in hand to your bank manager without checking the web.
One of the curious facts about money and the internet is that while those who visit personal finance websites are generally reckoned to be more financially aware than their non web-based counterparts, one of the areas that tends to be most researched is not investment, pensions, or even mortgages – but loans.
Loans regularly account for a significant proportion of consumers using find.co.uk, an online financial directory, to obtain quotes from lenders.
Out of more than 6,000 website links available to find users, up to 10% of its visitors simply want to know how they can borrow money at the cheapest rate.
Yet all-too-often this is a market ignored in favour of more glamourous topics, such as online share dealing or banking on the web. This suggests there is a large audience hungry for simple information about loans, such as where to find one and how to apply for it.
Indeed, the evidence is that loans are taking over from other more traditional methods of credit. Research from the Finance & Leasing Association, whose members account for 28% of consumer credit in the UK, suggests that unsecured loans grew by 13% in 2000 (measured in cash terms).
Secured loans, such as second mortgages, rocketed by 67%. By contrast, point-of-sale finance for new and used cars fell by 13%.
Martin Hall, director general at the FLA, believes a new trend is emerging in consumer credit: ‘Direct credit (loans and credit cards) has certainly driven growth in 2000. No doubt this is one of the reasons why car finance through dealers fell. There are some highly competitive offers around.’
The question, of course, is where to find information about loans. The first point to understand is that it is no longer necessary to simply go to one’s bank and apply for a loan there.
The old notion of standing a better chance by going to see the manager does not apply: impersonal point scoring and risk assessment will take place just the same, whether you go to your branch or another institution. Indeed, the chances are your application won’t even be considered by your branch but by a computer hundreds of miles away.
The second point to understand is that choosing the right loan has never been easier: there are growing numbers of websites which offer comparison tables showing which products are most suitable for people’s needs. Comparison charts that allow people to input their preferences and get a solution within seconds now proliferate on the web.
Of course, finding the best loan means little if you get turned down by the lender you have applied to. In such cases, the first thought is to blame the credit reference agency your would-be lender went to.
This is a view firmly rejected by the agencies themselves. A spokeswoman at Equifax, in Glasgow, one of the UK’s top two credit agencies, says: ‘What we are doing is simply providing the information that lets each lender base its own lending criteria on. What we will find is that consumers will apply and be accepted by some lenders on the basis of information that will lead other lenders to turn the application down.’
Credit reference agencies hold a mass of information about tens of millions of UK consumers, leading to allegations of invasion of privacy and of the potential for inaccuracy.
But Jill Stevens, director of consumer relations at Nottingham-based Experian, the other giant UK credit agency, says: ‘Most of the information is simply stored with us by lenders who share it between themselves. Some of this information is basic, like the electoral register, which tells a lender whether a person lives at a certain address.’
Both Experian and Equifax argue that the number of mistakes made about people’s particulars are a tiny fraction of the total information held.
And they stress they want people to check to make sure the information held on them is correct: ‘If any of the information on file is disputed we will flag it as such,’ says Stevens about her company.
Obtaining information about oneself from credit reference agencies involves simply writing for the details and enclosing a #2 cheque or postal order.
The agency must reply with the information within seven working days.
What about fears that by applying for several loans at once, particularly online, one risks leaving footprints which, when revealed through a credit check, might result in a later application being turned down?
The Equifax spokeswoman says: ‘The most important reason why companies are wary of multiple applications is that they might uncover cases of fraud.
‘If you find that there have been six, seven or eight applications in a day or a short space of time it does raise the issue of whether that person is legit. And of course, lenders are keen to ensure people don’t over-extend themselves financially, especially within a very short space of time.’
However, one or two applications probably won’t set alarm bells ringing.
In any event, there is little danger of online comparison tools leading to multiple credit checks by themselves. All you are given, as a result of inquiry, is the rate itself. You then have to apply for it – and that’s when the credit check will be made.
The issue for would-be borrowers, then, is no longer whether to put on one’s best suit and tie, or dress, when going in to see the manager but of which among six or 10 options best suits one’s requirements. With loans, if nowhere else in financial services, power is definitely changing hands.
You can compare loan rates on line at the following sites:
Credit reference agencies: Equifax – www.equifax.co.uk
Experian – www.experian.com (0015 9344050)
THINGS TO CONSIDER WHEN LOOKING FOR A LOAN
What has not changed is the need to be careful when considering taking out a loan. Here are some of the most important issues to consider:
– Know the difference between an unsecured and a secured loan. Defaulting on a secured loan means that whatever the loan was secured on – usually your house – can be taken away.
– Try to steer clear of early redemption penalties. If you want to pay off your loan before the term is up, you should not be penalised.
– Watch out for insurance costs. Many lenders will quote a good rate – until you discover that the rate is higher if you don’t take out their insurance to cover sickness or unemployment.
– Faced with insurance costs, always ask yourself whether you really need such cover. Does your workplace have a sickness scheme? How good is the policy? When would it kick in?
How will insurance help if you are self-employed?
– For smaller purchases, ask your credit card issuer to consider increasing your card limit – and be sure that you have the lowest rate on your card.
– Anything over 12% is more than you need to pay.
– If you are borrowing to buy a car, always say so. Many lenders offer slightly cheaper rates on auto loans.