Can Low Rate Loans Make a Come Back?

As the Bank of England base rate was not raised again since hitting .5% in March of 2009, ever more people are baffled why the rates for all types of online loans and finance have in fact been higher over the last couple of years than they have been for a long time. This is due to a number of reasons, and this article will hopefully give you an insight into why.

Lack of competition

As a result of the global credit crunch and the problems caused by lump sum Payment Protection Insurance (PPI), there are now less loan companies in the market place. The mis-selling of PPI has caused a significant concern for the UK finance industry, as a majority of lenders were let’s say over enthusiastic in their zest for selling this insurance policy. They failed to explain the product they were pushing and in a majority cases led the applicant to believe that PPI was mandatory. Also for the secured home loans industry a great many lenders sold their PPI insurance as a one off payment that covered the applicant for the first 60 months of their loan. Because this premium was generally added to the loan amount and because of this the applicant was subjected to interest on the premium for the duration of the loan (up to 25 years). The government changed the law regarding the sale of this type of insurancePPI which left the loan companies open to court action, not just on new sales of this product but also on historical sales. This opened the flood gates and in most cases the lenders were being forced to repay the cost and any interest that had been charged on the premium. Because of this numerous lenders were forced out of business.

Uncertain economy

As a result of the state of the country the small amount loan companies that are still in the market are worried that they will not get their money back. This uncertainty has caused them to change their philosophy and re-think their lending policy and also their interest rates in order to negate their exposure. This double edged attack has reduced the numbers of people they will lend to, and the ones that do qualify are being charged higher rates.

Will cheap loans come back?

Which could result in a rate war where the main benefactors will be the applicants as they see more competitive rates. Another possibility is that the lenders may need to become more forgiving with their criteria, in order to sign up their portion of new business. This will help to make it easier for those people that have had financial problems recently to secure the loan for bad credit we need to help get back onto an even keel.

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