Even a potential borrower with a good credit history can struggle to find a good cheap loan deal at the moment, but for many individuals who require credit, but have a bad credit history through previous loan arrears and defaults, for example, it may seem impossible to get the loan they need and many don’t even bother applying for a loan in the first place.

But one or two specialist loan companies are now starting to return to the market and offer secured loans on a bad credit loan basis.
One such company is First European, who have just completed the largest secured loan in their history, via the loan broker Loans Warehouse.

Although the secured loan was only for a total amount of £33,000, Loans Warehouse are claiming this amount as a significant step in the bad credit loans market, given the current economic conditions in the UK and the reluctance of traditional lenders to offer loans to even credit worthy borrowers.

The loans are available from £5,000 to 30,000 and will allow unlimited home owner loan arrears, along with ignoring any County Court Judgements (CCJ’s) or loan defaults in the past. The bad credit loans are available to employed and self employed individuals up to a loan to value of 65 per cent.

Loans Warehouse has been dealing with First European for around 19 months now and in that time, they have completed more than 100 bad credit loans for borrowers, for a total value of almost £2 million.

Both the government and consumer groups are concerned about the situation, following a new report from the Department for Work and Pensions (DWP) which highlights that many individuals in the low earnings categories are paying a “poverty premium” for their loans and other credit.

Many of these individuals are unable to obtain a loan from a traditional high street bank or other loan company and as a result, many are pushed towards pay day loan companies, or even a loan shark as an alternative source for the finance they need.

The report from the DWP has suggested that credit unions are ideally placed to offer a serious alternative to pay day loans for many lower earning individuals, giving them the opportunity to access a cheap loan alternative to their current expensive credit and loan options.

However, to provide a realistic service to consumers, credit unions need to change, expand and develop in order to bring themselves up to date and offer a realistic loan solution for millions of people.

The DWP has predicted that it will take between seven and ten years to bring credit unions to the level where they are able to provide a full and comprehensive cheap loan service to those who need it the most.

Lord Freud, the Welfare Reform Minister said “Currently around seven million people fall into the trap of high cost credit, with some being charged more than 6,000 per cent in interest on short term loans.”

“For too long predatory lenders have been plaguing the homes of vulnerable people, who often have no other way to get cash when they need it most.”

However, a new report has highlighted that the situation in the London area is far worse than in any other area of the country, with some individuals living in the capital facing some of the most complex debt problems with their personal loans and other unsecured debts.

The news comes from the debt charity the Consumer Credit Counselling Service (CCCS), who have reported that he average person in the capital who approaches them for help has unsecured loan and credit card debts of around £17,031, significantly higher than in other areas of the UK and around 42 per cent of those with debts were faced with monthly loan repayments of more than half their regular income.

The figures from the CCCS show that across the UK as a whole, people who approach the charity have an average of £44 surplus income per month, whereas in London tis average figure is a shortfall in income of £47 per month.

One in eight Londoners who approach the CCCS are already behind with their rent of home owner loan, with some of the highest levels of loan arrears in the country.

Delroy Corinaldi of the CCCS said “When it comes to financial difficulty, London is a divided city, with even neighbouring boroughs having highly varied and complex personal loan debt problems.”

“We are extremely concerned that the financial squeeze and high cost of living in the capital is making it increasingly difficult to repay existing loan debts. Hundreds of thousands of households may be about o fall, or may have already fallen, into difficulty as a result.”

The overall figures have revealed that here has been a slight decline in the level of bad loan debts which have become unmanageable for individuals, a the overall level of insolvencies fell by around 4.7 per cent up to the tax year end this year, compared with the position twelve months ago.

However, there has been a significant increase in the number of Debt Relief Orders (DRO’s) and Individual Voluntary Arrangements (IVA’s) over this same period, with an increase of 16.3 per cent and 8.1 per cent respectively.

DRO’s and IVA’s are both designed to help people avoid being declared bankrupt and are the last stop before this particularly serious option for getting out of loan debt. However, they are both still extremely serious forms of loan debt management and have a huge impact on an individual’s credit rating and ability to get a loan in the future.

Kevin Still of Atlantic Debt Management said “With the UK now in a double dip recession, rents rising, interest rates on home owner loans increasing and the cost of living continuing to climb, loan debts that were manageable in the past are likely to become more daunting and could easily spiral out of control.”

“It is crucial that those in loan debt seek help before their situation worsens and don’t become complacent where statistics outwardly indicate that the trend in personal insolvency is reducing.”

As a result of this, the average level of unsecured credit on things like personal loans and credit cards had continued to fall steadily from January 2010, right up to the end of last year, as people took advantage of their cheap loan rates on their home owner loan, in order to repay more expensive loan and card debts quickly.

However, the latest figures from the debt charity Credit Action, have revealed that this trend has reversed since the beginning of this year, with the average level of unsecured loan and card debt increasing by £34 in January this year and a further £19 in March, although the average figures did drop slightly during February.

The average amount of household debt in the UK on unsecured loans and other consumer credit debt, but not including home owner loan debt, now stands at £7,903. If home owner loan and mortgage figures are included, this figure increases to around £55,436.

The overall level of outstanding unsecured loan and credit card debt in the UK stood at £1,458 trillion in March and looks set to continue increasing.

Michelle Highman of Credit Action said “Based on the figures for the first three month of the year, it certainly seems as though the burden of consumer credit and loan debt has started to increase. Whilst debt isn’t necessarily a bad thing in itself, it can quickly become a very serious problem if you’re unable to pay it back.”

“That’s why it’s absolutely crucial for consumers to be on top of their money, particularly given the fact that we’re now in a double dip recession.”

This week, Sainsbury’s has announced that it is to introduce a price promise guarantee on its personal loans, across the whole range of unsecured loans from £1,000 up to £25,000.

The personal loan price promise guarantee means that if a customer is accepted for a personal loan with Sainsbury’s Bank and that customer is then able to obtain the equivalent loan from an alternative provider at a cheaper loan rate, Sainsbury’s will guarantee to lower their own loan rate to beat the new deal.

The offer is available to those customers who have already successfully applied for a personal loan with Sainsbury’s on their standard loan product. Any claim for a cheaper loan deal must be made within 28 days of the original loan offer and before the acceptance forms have been returned for the Sainsbury’s loan agreement.

If a customer is able to find a cheaper loan deal with an alternative lender and the claim is accepted, then Sainsbury’s will reduce the rate on their own loan to 0.1 per cent lower than that of the alternative provider. The alternative cheap loan must be on a like for like basis as the Sainsbury’s loan.

Steven Baillie of Sainsbury’s loans said “We are constantly looking for ways to reward our customers. Those customers who secure a personal loan from us can rest assured that they will be offered one of the best rates on the market. But if they can secure a better deal elsewhere we now promise to beat it. We believe there are no other loan providers to make a commitment quite like ours.”

New research from the insurance company Legal & General have shown that somewhere in the region of an extra 1.2 million people across the country are now struggling to stay on top of their loan repayments and other household bills on a monthly basis as a result of the downturn, with many missing loan repayments and building up loan arrears.

The increase in numbers has been calculated up to the end of April this year and this means that there are now around 3.3 million consumers in the UK who have more money going out in bills and loan repayments each month, than they have coming in in the form of regular income.

The survey found that only around four in ten households in the UK are in the position where they have some level of disposable income left over at the end of the month, thereby allowing them to build up some savings, or overpay on their personal loans and credit cards in order to reduce their overall debt levels.

The figures show that, for those who are seeing a shortfall between their income and expenditure, the average shortfall is around £74 per month, although many consumers are in a far worse position than this.

Those individuals who find themselves in this position should take action before it is too late and they have high levels of loan arrears. Firstly they should contact their loan providers and other creditors to see if they can offer any alternative repayment plans to restructure their loan.

A debt consolidation loan could be a possible solution to reduce monthly outgoings, as well as shopping around for the best deals on other household bills, such as utilities and insurance products.

The news comes from the credit reference agency Experian, who say that their latest figures show that there were 4.7 per cent fewer insolvencies through bad loan debts in the UK during the first three months of the year, compared with the same period twelve months earlier.

The best improvement in the figures was amongst young professional people and those who have bought a house recently. However, there was an increase in bad loan debs and insolvencies amongst wealthier individual and retired people with a reasonable pension income, where bad loan debs and insolvencies increased by 25 per cent, compared with the same period last year, although these groups only accounted for 2.70 per cent and 3.35 per cent respectively of bad loan debts overall.

The largest group for insolvencies and bad loan debts is still those individuals who are dependent on state benefits, with many ex council house tenants who previously took a loan out to buy their council house, now facing insolvency proceedings through their bad loan debts.

This sector accounts for around 9.26 per cent of the overall population, however insolvencies and bad loan debts in the same sector account for 14.6 per cent of the national total and has seen an increase of 23 per cent this year, above the same time twelve months ago.

Simon Waller of Experian said “By using data and analytics to identify the specific needs and characteristics of customers, lenders can better identify those that are genuinely struggling with their household bills and loan and credit commitments so they can treat them sensitively and according to their individual circumstances.”

Many individuals may think that they are credit worthy and should be able to get a personal loan quite easily, but are then surprise when the loan company either rejects them for the loan, or increase the interest rate due to their credit score.

There could be number of reasons why someone is having difficulty in getting the loan they require, other than if they have a poor credit rating from previous missed payments or loan arrears and defaults.

Simple things such as changing jobs recently, or having several different jobs over a short period of time, could reduce a person’s credit score and chances of getting a loan, as this can show a lack of continuity. Therefore if someone is thinking about changing jobs and taking out a new loan as well, they should apply for the loan before they change jobs.

Ironically, someone who has absolutely no outstanding loan debts or a credit card could also have difficulty getting a loan, as they have no track record of regular loan repayments to show they can manage their money over a period of time.

If someone has moved house on a regular basis, this shows a lack of stability, as with changing jobs regularly, or if a person is not registered on the electoral roll, it could also impact on their ability to get a loan.

Taking out cash on a credit card is always a bad sign, as is making a large number of loan or card applications over a short period of time. Both of these activities will affect credit score.

Before applying for any kind of loan, check your credit file, as this will highlight any problem areas and give you a realistic idea about what type of loan you may be able to apply for and avoid any damaging or embarrassing loan rejections.

There has been a battle raging for several months now between a number of unsecured loan providers, to see who is able to offer the best cheap loan deal and although this has gone fairly quiet over the course of the past couple of months or so, it looks as though the pace could be picking up once again.

Sainsbury’s bank has just announced this week that it is reducing the interest rate on unsecured loans of between £7,500 and 15,000 over a one to three year term, to just 5.9 per cent. This is now officially the lowest loan rate on the unsecured loan market at the moment and the first time unsecured loan rates have fallen below 6.0 per cent since September 2007.

The average rate for the top ten unsecured loan deals of this size is now 6.27 per cent, which is the lowest since May 2007, according to research from Moneysupermarket.com, when the rate was then 6.28 per cent.

This new cheap loan rate is only available to those borrowers with an excellent credit rating and the actual rate payable is determined by individual circumstances, although this new low loan rate is likely to prompt other lenders into taking similar action with their loan deals.

Tim Moss of Moneysupermarket.com said “There is no doubt that the credit crunch has had a significant impact on the personal loans market. Although there has been healthy competition over the past two years, this loan rate reduction by Sainsbury’s Bank is a real landmark, there hasn’t been a rate below 6.0 per cent since the financial crisis began.”