More protection for borrowers.

Posted in 'Dealing with Debt' by Barry Stamp

09 November 2007

New regulations to be introduced next year will give consumers extra protection on borrowing and also reduce the penalty charges that are levied on early repayment.

As Britain’s level of consumer debt continues to grow, new measures are to be introduced in April 2008, aimed at helping borrowers to make more informed decisions on which product is right for them. The Government is keen to reduce levels of consumer debt and has worked with the Financial Services Authority (FSA) to amend the rules governing secured borrowing.

Currently, there is a 16 day ‘cooling-off’ period on secured loans of up to £25,000, during which the borrower has the right to change their mind and cancel any agreement. Under the new regulations, the same rights will apply to secured loans over £25,000.

The range of loan products on offer to consumers can often seem bewildering and strict guidelines are to be introduced for lenders, to ensure that products are not mis-sold and that borrowers are offered those that best suit their requirements. We have long been concerned that consumers are often unaware that some loan offers are secured on their homes – the distinction between unsecured personal loans and secured loans is often not made very clear.

A further change will see a reduction in the penalties that are imposed by lenders should a borrower choose to repay their loan early. This could reduce the charge from 6% to 1% of the remaining balance if the loan is repaid in the first 5 years.

This is another boost for UK consumers, following a decision by the House of Lords to uphold Section 75 of the Consumer Credit Act 1974, which protects purchases over £100, when the payment is made by credit card when abroad.

In current market conditions, there are still a small handful of competitive deals to be had on personal loans – Alliance & Leicester offers one of the best deals available anywhere, with a typical APR of 7.8%. Backed by Santander, they’re a reliable and responsible lender. For those with a good or excellent credit rating, Zopa can be a good alternative with rates from 8.6% for larger loans of up to £15,000.

For most people, the cheapest source of loan finance at the moment is available from the Post Office. You need to apply for the Post Office credit card, then use the card to purchase goods or services up to £2,000, then you can switch that to a loan at a market beating 6.6%.