Loans News

Today it was announced that the Bank of England has held base rate at 0.1%. While this may seem like good news for consumers looking to borrow money, our research has found that over the last few months, interest rates on loans and credit cards have increased.

Although personal loan and credit card rates have been rising, for consumers with a good credit score, there are still some highly competitive deals on offer. Here we’ve looked at what has been happening to personal loan and credit card rates since the beginning of 2020 and highlight some of the lowest rates available.

A new type of unsecured loan specifically for those over the age of 55 has recently been launched by loans broker Free2. Those who are retired and have an income through an annuity or a final salary pension and own their home can now apply for loans of up to £150,000.

This new type of loan joins a range of specialist lending options usually only available to the over-55s, including equity release, later-life mortgages or retirement interest-only mortgages. However, secured loans and unsecured personal loans can also be accessed by the older borrower.

Older borrowers can apply to lenders through Free2 for loans of between £5,000 to £150,000 for a term of five to 20 years. Borrowers will need to be aged between 55 and 70, with the loan term finishing before the borrower reaches the age of 75. Unlike equity release, these loans do not require the borrower to use their home as security. However, borrowers will need to make regular fixed monthly repayments, while equity release requires no repayments to be made while the borrower is alive and living in their home.

Subject to certain terms and conditions, if the borrower dies before the unsecured loan is repaid, then the loan is written off, whereas other forms of secured lending such as equity release or a later life mortgage will always need to be repaid.

Moneyfacts has looked at the personal loans currently available and found the largest loan currently available is £50,000, however this is only available to the existing customers of Barclays Bank, HSBC, first direct, NatWest, Royal Bank of Scotland and TSB. For those who don’t bank with these brands, then the maximum is £35,000 for existing customers of Lloyds, Halifax and Bank of Scotland, while £30,000 is the maximum available from RateSetter, Clydesdale Bank and Yorkshire Bank. Loans of £25,000 are more universally available with 40 lenders offering these to existing and new customers.

Moneyfacts.co.uk has reviewed the eligibility criteria, specifically for pension income and maximum age restrictions, of 10 lenders – all of whom allow loans of £12,500. We found that in the majority of cases, lenders will accept those that are retired or with a pension income and only two lenders had a maximum age limit by which the borrower had to repay the loan. This was 75 for Tesco Bank and 70 for AA.

Loans Warehouse has teamed up with Credit Kudos to become the latest loans broker to use Open Banking to offer consumers an up-to-date assessment of their financial situation.

Although Open Banking has been around for a number of years, some experts believe that it is now rapidly transforming the lending sector, especially during the current economic uncertainty. Freddy Kelly, CEO of Credit Kudos, explained: “Current credit risk assessments often rely on information that can be 30-90 days out of date and do not paint an accurate picture of a borrower’s financial situation – particularly in a time of uncertainty when people are facing drastic income changes as a result of redundancy, reduced workloads and furlough. As a result, many lenders have significantly reduced or paused lending, concerned that existing risk and affordability assessments can’t identify significant changes in a customer’s financial circumstances which could significantly affect their ability to repay a loan.

“Open Banking is helping lenders overcome these issues. With the customer’s permission, Open Banking allows regulated companies to connect directly to banks and financial institutions to securely access up-to-date, financial transaction data. This data can then be used to build a complete and accurate picture of the customer’s ability to borrow. This way, lenders can continue to lend responsibly, to those who can afford to repay them which is even more important in the current climate.”

With the economic uncertainty brought on by the Coronavirus pandemic, many consumers have been looking at consolidating their debt to help get a hold of their personal finances. Research carried out by Moneyfacts.co.uk has found that not only is it becoming more expensive for consumers to take out personal loans, but many are finding that their loan applications are being declined or held up for long periods of time.