As the Bank of England base rate was held at 0.5% again since hitting .5% in March of 2009, numerous people are baffled why the rates for all types of loans and finance have in fact been more expensive over the last couple of 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.
Not enough lenders
As a result of the global credit crunch and the issues resulting from lump sum Payment Protection Insurance (PPI), there are now a lot less lenders available. The mis-selling of PPI has caused a significant problem for the UK finance industry, as a great many lenders were let’s say too pushy in their approach to selling this insurance cover. They chose not to explain the product they were selling and in a great many cases led the applicant to believe that the cover was compulsary. Also for the homeowner loans industry a majority of lenders sold their PPI insurance as a one off payment that covered the applicant for the first 60 months of their loan. However this premium was mainly added to the principle and because of this 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 concerning the sale of payment protection insurancePPI which left the lenders open to court action, not only on new sales of this product but also on previous sales. This opened the flood gates and in numerous cases the lenders were being forced to repay the premium and any interest that had been incurred on the policy. Because of this a great many loan companies were forced into liquidation.
The country’s financial situation
Because of the state of the economy the few loan companies that are still in the market are concerned that they will not get their money back. This fear has caused them to change their philosophy and re-evaluate their lending policy and also their interest rates in order to minimise their exposure. This double edged philosophy has taken more people out of the market as far as arranging a loan is concerned, and the ones that are offered finance are being asked to pay more expensive rates.
Will cheap loans come back?
There are early signs that things may be about to get better, with some new loan companies preparing to enter into the market, and the new cheap rate already available from “Link Loans”. As more players get involved in fighting for your business that is likely to do a couple of things, dependant on where in the picture the new players want to compete. result in a rate war where the main benefactors will be the applicants as they see the rates reduced. Another possibility is that the loan companies 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 people that may have been experiencing financial problems recently to secure the loan for bad credit we need to help get back onto an even keel.