Standard and High-Interest Loans Offered to Borrowers

Banks offer different types of loans to individual borrowers. The list of financial institutions includes specialist companies, credit unions, building societies, doorstep lenders, brick-and-mortar banks, as well as companies operating over the phone and online.

Interest Rates and Charges

Doorstep lenders advertise quick decision making, but this is an expensive form of financing. The annual percentage rate can be as high as 900 percent. On the positive side, they offer small amounts of less than £50. Online banks and specialist companies are a much cheaper alternative. In fact, they offer lower rates than traditional banks because they save on rent, utilities, and salaries. Credit unions also offer attractive interest rates and terms to their members. There are many credit unions such as the Manchester Credit Union, the Cash Box Credit Union, and others. They are actively engaged in fighting loan sharks and payday lenders. This is an attractive option for borrowers because of the low interest rate. Most financial establishments feature an APR of 12.7 percent or 1 percent a month. Other entities offer an APR of 26.8 percent or 2 percent on the outstanding balance. At an interest rate of 12.68 percent, if you borrow £100, your weekly repayment would be £2.05 and the total amount due – £106.56. The weekly payment on a £1,000 loan is £20.51. Most credit unions provide personal loans with a term of up to 10 years and unsecured ones for up to 5 years.

In addition to affordable interest rates, borrowers benefit from the fact that financial institutions are regulated by the Prudent Regulation Authority and the Financial Conduct Authority.

Fast Loans and Other Lenders

While payday lenders operate under the Consumer Credit Act 1974, interest rates are not regulated. Thus the interest rate offered is much higher compared to standard loans. The government has announced plans to tap interest rate charges. Not only that, but there are proposals to lower the cost of borrowing by reducing penalty and arrangement fees. The Financial Conduct Authority is to decide on the level of the cap. These measures are discussed in an effort to discipline the industry. While the government was previously reluctant to impose limitations, some large payday lenders charge interest rates of over 5,800 percent. In addition, there are loan sharks that prey on debt-ridden borrowers, young mothers, and low-income customers. They use illegal lending practices and charge high fees for their services.

Where to Get Advice

If things go wrong, you may want to contact the Citizens Advice Bureau, the National Debtline, or the Consumer Credit Counseling Service. They offer confidential advice free-of charge.