Bad Credit Loans

It used to be the case that those with problematic credit histories could still get loans from specialist adverse lenders, albeit at a high price. This is still possible although much more difficult, and really the only way to get finance these days is to put up your home as collateral i.e. get a secured loan.

This is obviously no good for tenants who have no property to secure a loan with. This leaves only one option for non-homeowners with a poor credit history who want a loan.

Guarantor Loans

These are loans where a third party backs the loan applicant with a promise to take over repayments if the borrower falls behind. In theory any homeowner can act as guarantor, but it’s generally the case that a good credit history is needed. Usually, the guarantor will be a family member such as a parent, or a close friend, but in some cases an employer may agree to guarantee a loan.

The Cost

Guarantor loans are only really taken out by those with credit problems, so there is an inherent risk to the lender, even if someone else guarantees the loan. This means that the interest rates are high, often well above 30%. Unfortunately in today’s climate, if you need a loan you might have no option but to pay APRs like these.

Where Can You Get Them?

You won’t find guarantor loans available in high street banks, and while more and more lenders are starting to offer them, they are only really available online. Use Bing or a similar search engine to find a lender servicing your region.

So should you simply give up on getting hold of plastic? Not at all! Depending on exactly how poor your credit rating is, you have a couple of options.

Cards Specifically For Poor Credit

These are cards aimed at people with a bad credit rating or no history at all. They are genuine credit cards, albeit with low credit limits and high interest rates. They are unlikely to have any extra features such as balance transfer offers or rewards programs. They are a good way of rebuilding an impaired rating as all payments are reported to the credit reference agencies, and if you manage your account responsibly your credit limit will usually rise over time.

Prepaid or Secured Cards

These cards offer all the payment convenience of a mainstream credit card, but with a crucial difference: you can’t borrow money with them. Before you can spend, you need to load funds onto the card account. This means that there is no risk to the card issuer, and so approval rates are very high. They can be used in all the same places as a standard card, either in-store or online. There is usually a charge for either using the card or for loading funds – sometimes both, so make sure you compare a few prepaid cards properly before applying so as to make sure you get the best deal.

So, given that carrying a card of some kind is so important in today’s online age, even if you have a very poor credit rating you can still enjoy the benefits of plastic, either with a high interest credit card or a prepaid card.

Now, I’m not going to say that all such offers are scams, but the number of complaints  about dodgy loan companies is on the rise, and the Office of Fair Trading (the credit industry regulator) warns against paying any upfront fees.

The reasons are simple – far too often, would-be borrowers desperate for cash are taken in by the marketing and pay their fee, only to find that no loan is actually offered, or other credit that is completely unsuitable is suggested, like a payday loan or an account with a catalogue company.

Basically, pay a fee and you risk getting ripped off. Many companies have had their credit licences revoked for taking part in these scams, with little or no hope of the fees being returned to the applicants.

Even if you don’t get ripped off, you’ve got to question why loan brokers charge a fee in advance – they should be making money off commission on completed loans, not by charging fees. Demanding a fee suggests that the brokers aren’t as confident as they might be about actually arranging a loan and receiving commission.

So, if you’re looking for a loan, especially if you have less than perfect credit and aren’t a homeowner, make sure you only apply through a company that guarantees not to charge you any upfront fees – and if you’re asked to pay, refuse and look elsewhere.

Often, your details are used to obtain credit or other finance services, and this credit will most likely not be repaid. It can take months before you find out what’s happening, by which time untold damage may have been caused to your credit rating.

In extreme cases, the fraudster may be able to ‘hijack’ your bank accounts and credit cards.

How can you prevent it?

Fraudsters only need a few of your details to begin their work. Even your name, address and birthdate can be enough to make a start, and every time they successfully masquerade as you they will be adding to their profile of you, making it easier and easier to commit further fraud.

Considering this, you should be very careful about who you give information to – if someone asks you for personal info, ask yourself why they need it, and only reply if you’re satisfied it’s necessary to do so and that the query is genuine. Banks are well aware of this fraud, and will never ask you for your account details or passwords etc unless you’re the one making contact (for example, with telephone banking).

You should destroy any documents containing sensitive information rather than simply throwing them away – fraudsters often scour residential rubbish bins in the hope of finding such documents.

Credit Cards

Credit cards are as valuable as cash to a fraudster – once they have your details it can be easy to order goods online or over the phone, and while most card issuers will have anti-fraud guarantees, it’s a hassle you don’t need.

You should inform you bank immediately if you lose your credit cards or cashcards – if they fall into the wrong hands, they can easily be used fraudulently.

Also, if you move home, arrange for mail redirects so that any replacement cards etc are not left hanging around in your old letterbox.

Credit Reports

It’s a good idea to keep an eye on your credit file, as any fraudulent activity will probably show up on it (such as applying for credit in your name). Services such as Experian and Check My File make this simple, and could save you a lot of trouble and expense if you spot any fraud in its early stages.

If you’re a victim

If you spot something on your credit file that you don’t recognise, or receive post or bills for services that you’ve not ordered, contact the organisation involved as soon as possible and ask for an explanation.

If you find a suspicious transaction on your credit card or bank statement, query it with your bank – this will alert them that there may be a risk of fraud, and they will take the matter very seriously.

If you’ve confirmed that someone is definitely using your identity, it may be necessary to close all your existing accounts and re-open them. Your bank or credit company will help you with this as it’s in their interests to end the fraud too.

You can also ask that your credit file includes a note that you’ve been a victim of fraud. This will be seen by all credit companies who you apply to in the future, and will alert them to be extra cautious with any application to ensure that it’s genuine. You can also register with CIFAS who will add you to their database of ‘at risk’ cases, another added layer of protection.

It will be a good idea to locate all your important documents such as passport, drivers licence, etc, to make sure that none of them have gone missing.

Check with Royal Mail that no one has set up a mail redirect on your address. Make sure that your post delivery is secure – for example, any letterbox in a communal area is lockable.

Finally, remember that you are not liable for any debts run up by fraudsters – once you can show that fraud has happened, the debt will be cancelled and any costs incurred refunded. The only cost you will have to bear is that of your time and worry in sorting the mess out.

The Mortgage Code is a set of standards and minimum levels of service that most mortgage lenders and brokers agree to provide. But what does that mean for you?

How does The Mortgage Code help me?

As buying a house is likely to be one of the biggest investments you’ll make, and the whole area of mortgages can be complex and confusing, it’s essential that you’re fully aware of your options and commitments at every stage of arranging your mortgage.

The Mortgage Code sets out the absolute minimum standards of service that you should expect, including that your lender or broker should explain your options and answer questions every step of the way.

And if things go wrong – for instance, you’re given bad advice or not told about all aspects of your mortgage – then you will have the chance of compensation if it can be shown that the code wasn’t followed correctly.

Who’s signed up?

The Code is voluntary to join – at the time of writing, the mortgage industry is not regulated by any official government organisation. However, virtually all of the lenders who provide mortgages in the UK have agreed to be bound by its conditions, as have over 12,000 brokers (also known as intermediaries). The chances are, whoever you’re arranging your mortgage through will be signed up, and if not you should think twice about continuing with that provider.

What does it cover?

A full copy of the code must be given to you by your mortgage provider if you ask for it, but here are some of the main areas it covers:

• You should be told about all fees and charges in advance, including any possible penalties for paying your mortgage off early
• The method of repayment (capital, endowment, interest only etc) should be clearly stated
• The kind of interest rate should be explained, whether it’s fixed, capped, variable etc, along with details of any changes (for example, what will happen when any introductory period has finished)
• Whether you need to take out insurance, and if there are any restrictions on who you insure with
• Whether there are any restrictions on moving home during the mortgage term
• What your repayments will be, both initially and after any discount has ended

What if I receive bad advice on mortgages?

Lenders’ and brokers’ compliance with The Mortgage Code is monitored independently. Any company who signs up to the code must also be a member of a complaints system such as the Financial Ombudsman Service or the Mortgage Code Arbitration Scheme.

Your lender or broker must tell you which scheme they are a member of, and should you be a victim of a company not following the code properly, you may be able to claim up to £100,000 in compensation.

The Future

The Government has announced that the mortgage industry will shortly become fully regulated, in line with other areas of the personal finance industry. This is due to take place in October 2004, and means that the mortgage industry will be overseen by the Financial Services Authority, the watchdog that currently regulates credit cards, loans, and other personal finance products.

Further Reading

The Official Mortgage Code Web Site provides more information, or you can request a copy of the full code from your lender or broker.

Update: As of 31st October 2004, the mortgage industry is directly regulated by the Financial Services Authority and the Mortgage Code has ceased to apply

Eight out of ten people don’t shop around for the best deal on their pension when they retire, yet everyone in this position is entitled to do so by exercising their open market option.

Although legislation introduced in 2003 obliges UK Insurers and Employer Pension Schemes to tell prospective retirees about this option, there is little evidence yet that many people are taking up their open market option.

Improve your pension income

Using the open market option could improve pension income by 15% or more for those in good health.

If you are a smoker or are not enjoying the best of health you could improve your income by 20% or more. This is because the insurance companies feel the individual’s life expectancy is likely to be shorter than normal. Of course, if you then go on to have a long retirement, you will have the added bonus of a better pension!

If you have suffered serious ill-health you may qualify for what is called an impaired annuity. This can improve your income by 30% or more, depending on the exact nature of your health.

It pays to shop around. It doesn’t cost and it may result in a much higher income in retirement.

Rate comparisons (Pension Annuities)

Amount of pension per annum for £100,000 fund (after any tax-free cash has been taken). Single life annuity payable monthly without guarantee and no escalation.

Table shows:

• Variation between top and bottom rates demonstrate the need to shop around (the lower figures are taken from those offices prepared to quote. Customers may be offered even lower figures from other offices!)
• Eligibility for enhanced or impaired rates can provide a considerable increase in pension payable

What kinds of Travel Insurance are available?

Policies can cover you for travel either just in the UK or Europe (cheapest), to Australia / New Zealand, or Worldwide. North America is normally included in the ‘Worldwide’ option.

As well as choosing the area you’re travelling to, insurance is available in a variety of basic types:

Single Trip

This is the most basic style of policy, covering you for a typical holiday or business trip that lasts a few weeks or less. This is also the cheapest kind of policy to buy.

Annual Multi-Trip

If you are a frequent traveller, it might work out cheaper to buy an annual policy that will cover you on every trip you make during the year.

Long Term / Backpacker Cover

If you are planning to be away for longer, for example between 2 to 12 months, long term insurance may be a better option. Also often known as Backpacker Insurance, there are usually age restrictions on this kind of cover.

What can be covered?

The level of cover will of course vary from policy to policy, but below are some of the most common circumstances covered by the majority of insurance policies, plus a few more specialist policy elements you might need to consider.

Medical Bills

This is probably one of the most compelling reasons to take out travel insurance. Should you be unlucky enough to fall ill or have an accident while abroad, medical fees can be very expensive.

Even though agreements between countries in the European Union mean that basic or emergency health care is available at a reasonable cost, the cost of a serious illness or accident can be a shock to those of us used to the National Health Service. And in other areas of the world, costs can escalate into the thousands extremely quickly.

Cancellation

Especially in the current climate, flights can be cancelled at short notice, or events may conspire to make a destination less attractive, leading to the cancellation or disruption of your holiday.

The costs of this – or cancellation for most other reasons – can be covered by insurance, leaving you with the peace of mind that even if you do lose your holiday, you won’t lose your money too.

Loss of Luggage

With hundreds of thousands of people flying on tens of thousands of flights every day, there is always the chance of your luggage getting ‘lost in the system’. While computer technology and higher security have made this unfortunate situation much less common, mistakes can still happen.

If your luggage becomes lost temporarily or permanently, your insurance can replace all your possessions or provide you with emergency replacements or funds until the luggage is found.

Damage to Possessions

Your household insurance may cover your possessions while you are abroad, but this may be limited to named items or a limit on how much you can claim. Most travel insurance policies will have an option to cover your personal possessions against damage or theft while abroad.

Winter Sports and Dangerous Sports

If you intend to take part in Winter Sports, or other activities with an increased risk of injury, you may find that your standard insurance doesn’t cover your medical bills should you require treatment. In this case, you can take out specialist cover for these activities.

Ski insurance may also provide compensation if you are unable to ski because of weather conditions – check with your policy issuer.

Specialist Cover

There are plenty of other options available depending on the insurance company and policy you choose – from specialist golf cover to insure your golfing equipment, to policies tailored to the over 65s.

Summary

Travel Insurance may at first seem like an unnecessary expense, but you must weigh up the cost should something go wrong (especially outside of Europe) against the usually reasonable cost of most policies. The choice is yours!

Your credit file is a record of your financial history and is maintained by a company known as a Credit Reference Agency. There are two major credit reference agencies in the UK, Experian and Equifax. These companies collect various pieces of information concerning your finance and credit history, and sell this information to loans companies, credit card issuers, and anyone else who needs it to make a decision about offering you finance.

What details does my credit file contain?

Details of your previous credit applications, and whether or not they were successful, are recorded. Any late payments, defaults, CCJs, or debt recovery proceedings will be recorded, and some companies also report on ‘good behaviour’ which will also be kept on your file.

Additionally, every request for your file details (known as a credit search) will be recorded.

Can I see my file?

Yes. You can write to the credit agencies and request, for a small fee, that they send you a copy of your file. Alternatively, there are many credit reporting services which will provide a similar service, such as Checkmyfile.com.

What if information is incorrect?

If after looking at your credit file you discover that incorrect information is contained, you can request that the errors are corrected. If you can prove that the details are wrong, the credit agency is obligated to correct the mistake. If there is a dispute over some information in your file, you are entitled to enter your own comments on to your file explaining why you disagree with an entry.

If your credit record contains details of old debts that you have since cleared, you should ensure that your file includes the information that you have now repaid the debt.

Does my file decide whether I can get credit?

Only in part. Credit companies will use the information on your file as part of a larger process known as credit scoring. Some companies may be happy to lend to people with a certain amount of bad credit information on their files, others may be willing to offer credit even if your credit file contains records of serious debt.

In any case, checking your credit file for errors and ensuring that they are corrected will give you the best chance of obtaining finance!

It is estimated that around 20% of borrowers now have some element of flexibility in their mortgage deal, from simple overpayment options to a full current account set up.

What’s the fuss about?

The basic difference between an flexible mortgage and a regular one is flexibility in payments. Pay more, or less, each month according to your financial circumstances. If you have extra funds available, you can overpay to reduce your debt.

Some versions also combine your personal loans, credit card debt and personal savings into one large – but cheap – ‘overdraft’ to simplify your payments and reduce your interest charges. This is known as ‘offset’ – your savings will reduce your outstanding mortgage balance, while your debts will be charged at the lower rate associated with mortgages.

Next we look at some of the most common features available – although the details will of course differ from deal to deal.

Offset / Flexible Mortgage Features

Underpayment

If money is a little tight one month, you can pay less than usual with no penalty.

Payment Holiday

Should you be on reduced income for a longer period – for example through illness – you can usually take a ‘payment holiday’, making no repayments for a number of months.

Overpayment

If you have surplus cash available, pay a little more than your usual monthly amount to reduce the debt total, saving you money in interest charges.

Lump Sum Payment

If you are lucky enough to find yourself with a lump sum of extra cash, put it into your offset account rather than a savings account – the mortgage interest saved will usually be more than interest earned in a standard savings account.

Lump Sum Withdrawal

If you need fast access to a lump sum, for a car or holiday for example, you can withdraw it from your account. You will then pay the usual mortgage rate on your withdrawal, which will be much cheaper than a personal loan.

Drawbacks

There are no real drawbacks to flexible mortgages, although the interest rate will be slightly higher than discount mortgages – that’s the price of flexibility.

It may be tempting to view an offset or current account mortgage as a ‘bottomless pit’ of money to be drawn on whenever you need it, but of course you will need to pay off the total debt eventually. If you don’t keep track of your payments and withdrawals, the length of time it takes to repay the borrowing could end up being much longer than with a traditional mortgage – with the attendant cost of extra interest charges.

Conclusion

If you need flexibility in your mortgage, for instance if you’re self employed with variable income, then an offset mortgage could be a good choice. However, you should think carefully whether you really need the flexibility and the higher interest that comes with it.

The range of cards available slowly grew over the following years, until an explosion of card launches over the last decade resulted in credit cards being available in a bewildering variety of styles and brands, each with different benefits and drawbacks.

In this article, we hope to give some advice to help you choose the right card for you.

If you have a large debt on another card

If you are keeping a large balance on your current card, or medium balances on more than one card, you should think about making a balance transfer on to a new card. Many cards offer a 0% interest rate for balance transfers, so you will be saving money by not paying any interest over the period of the introductory rate.

The savings can be considerable – for example, if you moved £5000 from a card with an interest rate of 17.9%, you would save £494.48 over 6 months with a 0% interest card.

If you pay your bill in full every month

If you use your card for convenience rather than borrowing – such as buying online or not having to carry cash – and pay off your bill every month, you should look for a card that rewards you in some way for using it regularly.

Some cards offer a loyalty program where you earn points every time you spend, and these points can be saved up and exchanged for discounts on future purchases, special offers, or even paying off utility bills. A similar idea is cash back, where you are given back a percentage of everything you spend (usually between 0.5% and 2%).

An important thing to look out for with this kind of card is the interest free period. Most cards will not charge you any interest on your spending so long as you repay within a certain number of days (usually around 50 or so). Beware of cards that charge interest from the day you spend – if you repay your balance in full every month, you really shouldn’t be paying any interest at all.

If you use your card when money is short

If you use your card for ‘emergency money’ and usually keep a small to medium balance, you should be looking for a card with the lowest interest rate (APR). The lower the rate, the less interest you pay, and the more of your debt each monthly payment will pay off.

Credit cards often used to charge exorbitant interest rates of 20-30%, but over the years competition has brought the average rate down to 10-15%, and lower in some cases (although a good credit rating is usually needed). Be aware that when you apply for a card you may not be offered the advertised rate, as the issuer will take your income and credit rating into account when deciding which deal to offer you.

If you use your card for large purchases

By law, all purchases over £100 made with a credit card are insured by the credit card company. In other words, your card issuer must refund you if you don’t receive a purchased item. Some cards go further, with online safety guarantees, insurance on the item against damage during delivery, or other safety features. If you intend to buy valuable goods online or by telephone / mail order, you should choose a card with good protection benefits.

Also, large purchases can earn you larger amounts of rewards or cash back (in effect, a discount on your purchase).

If you have a bad credit rating

It used to be very difficult to get a credit card if you had a bad credit rating. Nowadays, more and more companies use a system known as risk based assessment, where people with poorer credit scores can still get a card – but at a higher interest rate from the one advertised.

However, if your credit rating is very bad, you may have no other option than a secured card where you must pay for any spending up front.

Conclusion

There are some great deals out there, but it pays to think about how you will use your card, choose one that meets your needs and always check the small print before committing yourself!