Bypass the Credit Jam and Push Loan Costs Down


Up and down the country this week, new cars will be driven off the car dealer forecourts. Yet, in spite of countless warnings about the dreadful effects of the credit crunch most of these cars will be bought on credit.

Findings from Moneyfacts.co.uk , the financial information site, reveal that failing to research the best deal on home improvements, cars or even a wedding loan could cost the consumer an extra 14 per cent. Potentially, this could mean that you are thousands of pounds out of pocket and finance options are getting more and more expensive. Consequently, it is worth investigating less conventional ways of getting cash.

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The price comparison site Uswitch.com says that taken over four years, the interest on a £8,000 loan will cost you £317 more than a year ago. It is worse still for smaller loans. Borrowing £1,000 will now cost you, on average, nearly 20 per cent APR, a rise of 3.5 per cent in the last twelve months. In addition, the criteria for borrowing are also getting stricter with lenders wanting to lessen the risk of bad debt. According to bank industry estimates, nearly 1.4million people have had their applications for an unsecured personal loan refused since the credit crunch began.

Usually, the most expensive way to buy is on credit cards. What's more, the chances of transferring balances to a zero percent rate are fast decreasing too.

Yet still we borrow. Loans on credit cards are growing by approximately £179million each quarter. If you have to borrow on card, the advice is to shop around.

Another way of raising cash is to borrow against you home. The interest rates are generally a little lower but in the current climate some experts say loans on property are to be avoided because missing only one repayment can put your home at risk. At least with an unsecured loan you will not lose your home.

Anew type of lender is emerging in the market place. Zopa (uk.zopa.com) describes itself as a "social lending" network. It is made up of private individuals who lend and borrow money. Borrowers say why they need money and how much they need to borrow before they bid for the loans on offer. Risk is reduced because members are only liable for £50 per loan and they can access the borrower's credit rating. Loans are financed from lots of different lenders.

Zopa makes its money by charging the lender a 1 percent annual fee and the borrower a transaction fee of £94.25.

If you need a loan specifically for a new car, there are countless dealer finance packages around. Beware! They seem convenient but are usually an expensive way of purchasing and since new cars depreciate in value so quickly, you could soon be paying well over the odds for something that is worth a lot less than you paid for it.

Mr Kuo of Fool.co.uk, a financial website, says that one solution could be a personal contract purchase. This type of arrangement means that you are buying the car but after a period of time the dealer takes it back. In this way you only borrow what is needed to cover the difference between the new value of the car and its value when it is returned to the dealer.

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