Best Loans Articles

There are many different and varied types of credit which are available to consumers in the UK, ranging from long term home owner loans and mortgages with relatively low interest rates, all the way through to credit cards, store cards and things like pay day loans, which charge extremely expensive rates of interest and are only intended for very short term borrowing.

For general borrowing, over a fairly short to medium term, one of the most popular types of borrowing is still that of an unsecured loan and the majority of people living in the UK will have had such a loan at some time in their lives, even if they don’t have one at the moment.

An unsecured loan can be used for practically any legal purpose, from buying an expensive item, such as a new car, or as a home improvement loan, or too be used as a debt consolidation loan, which is probably one of the most popular uses for an unsecured loan in the current financial and economic conditions.

Although pay day loans are technically unsecured loans, they do meet a very different criteria from a typical unsecured loan, with much shorter intended terms and much higher interest rates and therefore should be considered as a loan type all of their own.

Unsecured loans typically offer loan amounts starting from £1,000 and go up to £25,000 and can have a term ranging from just one year, going up to around seven years as a maximum, although it may be possible to take an unsecured loan outside these terms with some lenders.

Borrowers who take out an unsecured loan are given an extra level of protection, as these loans are regulated under the Consumer Credit Act in the UK, as are any credit agreements for an amount of under £25,000. This is why the maximum amount on an unsecured loan is limited to 25,000 and borrowers who require a larger loan than this should look at a secured loan, which is currently non regulated.

An unsecured loan gets its name due to the fact that the lender does not take any security for the loan from the borrower. With a secured loan, the lender will take a legal charge over the borrower’s property, usually their main home, which they can then repossess to recover their losses, in the event that the borrower defaults on the loan.

As no such protection for the lender exists on an unsecured loan, these are considered to be a higher risk type of loan than a typical secured loan and therefore the interest rates which are charged on an unsecured loan are usually generally higher in order to reflect this increased risk.

Despite the higher cost, an unsecured loan is still one of the most popular types of loan used by consumers today. This is largely due to the wide range of choice of provider, ease of application and usually a lack of any up front fees from the lender.

 An unsecured loan application is usually much quicker than a secured loan application, as there is no assessment of security to be carried out on a suitable property through a valuation a there would be with a secured loan. In many cases an applicant for an unsecured loan will find out almost immediately if they have been successful in their application and in some cases, the money could be transferred to their own bank account on the same day.

As there is no security for the lender with an unsecured loan, they are considered a higher risk loan than a secured loan would be an therefore someone who has a less than perfect credit history, with previous loan arrears or defaults, even if they are now cleared, could have difficulty in being accepted for an unsecured loan.

Having said that, some specialist loan companies will offer bad credit loans on an unsecured basis, but the interest rates which are charged on these loans can often be too expensive to make such a loan a realistically affordable option.

The cost of an unsecured loan can vary greatly, not only between different loan providers, but also dependant on how much a person borrows on their personal loan, as well as the repayment term of the loan.

Smaller unsecured loans, of less than £5,000 usually carry much higher interest rates than larger loans in excess of £7,500, as lenders are more reluctant to lend on small amounts, preferring large loan amounts as these are general more profitable for them.

The difference in rates can be quite marked. For example, a small loan of just 3,000 could well carry an interest rate of up to 18 per cent APR (Annualised Percentage Rate), whereas a larger loan of £10,000 may have a cheap loan rate of as little as 7 per cent.

Therefore, for someone who is looking for an unsecured loan near the cheap loan rate threshold, just below £7,500 for example, it may well be in their interests to take out a slightly larger loan than they originally wanted, as this could work out significantly cheaper over the term of the loan, even though the actual loan amount is higher. However, borrowers should be careful not to take out extra loan amounts just because they are able to, as this could lead to excessive borrowing and possible debt problems in the future.

If a borrower has several small unsecured loans and perhaps some credit card debt all of which charge high interest rates, one larger unsecured loan could be an extremely useful and cheap loan solution as a debt consolidation loan, for the reason already mentioned above.

There is a huge choice of unsecured loans from a number of sources and various types of provider. Many potential borrowers will simply approach their regular high street bank for an unsecured loan, but it is often worth shopping around for a cheaper loan deal with specialist independent loan companies, or via an online provider, who often does not have the expensive overheads of a high street lender.

For those who are unsure of how to proceed, there are several price comparison sites for unsecured loans on the internet, also there are many loan brokers and financial advisers who can offer help and advice for borrowers, as well as finding the best loan deal to suit a particular borrower’s needs. There is no excuse these days for someone not to get the best unsecured loan deal they can.

For the majority of people living in the UK at the moment, the financial situation is looking fairly gloomy as the austerity measures and government cut backs begin to kick in and take effect. This, coupled with high inflation has left many individuals struggling with their day to day living expenses, let alone luxury items.

But for many people with outstanding personal loans and credit card debts, on top of other monthly commitments such as home owner loan repayments and everyday household bills, their financial situation has now become unmanageable and many are finding that their outgoings every month are more than their income.

When people find themselves in this situation, this inevitably leads to problems with their personal loans and other debts, missing loan and credit card repayments and building up loan arrears and defaults, which has a crippling effect on a person’s credit rating and ability to obtain another loan in the future.

There is a growing problem with loan and credit card debt in the UK at the moment and more and more people are seeking debt advice from professional advisers and debt management companies. This is particularly the case amongst many middle class families and self employed people, many of whom have never suffered from loan debt problems in the past.

It is important that borrowers who find themselves in this position do not bury their heads in the sand about their personal loan debts, as this will only make the situation worse, until the Bailiffs eventually come knocking at their front door.

As soon as a person realises that they are struggling to keep up with their loan repayments and other debts, they should seek advice and help straight away, before the situation becomes worse and the problem will become more difficult to resolve.

One of the easiest solutions and one which will not affect a person’s credit score too badly, is to take out a debt consolidation loan, which will bring all a person’s debts together into one cheap loan at an interest rate which is usually lower than the debts which are being repaid.

If the term of a debt consolidation loan is over a longer period, this will reduce the monthly repayments significantly, although the borrower may end up paying more over the full term of the loan than they would have on their original loan debts, due to paying interest for longer.

One of the first things to do if a person is struggling with their loan repayments is to approach the lender who provided the loan or credit agreement in the first place. A lender will take a sympathetic approach towards a borrower in difficulty and will try and help wherever possible. This could include rescheduling the loan, or reducing interest payments for a period, whilst the borrower gets back on track with their finances.

In the first instance, it is always advisable to contact the loan or credit provider if a borrower is facing financial difficulties. However, if a person has several outstanding loan debts which are unmanageable and the lender is unable to provide a suitable solution, there are alternative options.

For those individuals with high amounts of loan and card debt, who need desperately to reduce their monthly outgoings on their loans, a debt management plan could be a realistic solution. Free advice is readily available on these types of plans from any of the registered debt charities in the UK, such as the Citizens Advice Bureau (CAB), or the Consumer Credit Counselling Service (CCCS).

There are also many private debt management companies, who will offer professional advice and arrange a debt management plan for an individual, negotiating with the various creditors and loan companies in order to reach an agreement.

Although these companies will charge a fee for their services, this could still be extremely beneficial for a borrower who is unable to manage their loan debts and who may be unwilling or unable to approach their creditors directly themselves.

Before entering into a debt management plan however, it is extremely important to understand the full scale of the costs involved and what service you will get for the fee. It is also advisable to shop around different debt management companies in order to find the best deal to suit your own particular circumstances.

Once a borrower has entered into a debt management plan, the company involved will approach all the various creditors and loan companies and negotiate a reduced repayment amount on each loan or card. This could include, reducing the interest payable on the agreement, or extending the term of the loan, or a combination of both.

A monthly repayment amount will be agreed between the borrower and the debt management company, which will be affordable for the borrower and will take in to account income levels as well as other financial commitments which need to be made each month.

Once agreed, the borrower will then make regular monthly payments to the debt management company, which will also include the monthly plan fee to the company. The debt management company will then distribute this payment amongst the various creditors and loan companies as has been agreed.

The terms of a debt management plan can also be altered and reviewed from time to time, which means that if a person’s financial situation improves, they will be able to increase their repayments and clear their loans and other debts sooner.

Many people confuse a debt management plan with an Individual Voluntary Arrangement (IVA) and although there are similarities, they are not the same thing. An IVA will be paid for a five year period, after which time any outstanding debt will be written off. As a result of this, an IVA will have a severely damaging effect on a person’s credit score and is considered to be one step short of bankruptcy.

With a debt management plan however, the debt will remain outstanding until every loan and credit card balance has been repaid in full to the provider. This means that although a debt management plan will have a negative impact on a person’s credit score, it will not be as serious as an IVA or bankruptcy would be.

As with any form of loan or credit agreement, anyone who is considering entering into a debt management plan should be very careful about researching their options before committing to a particular plan. By shopping around the various companies and taking separate independent advice on the matter, it is possible to get the best possible solution for your loan debts to meet your own specific needs.

The majority of people living in the UK will have had a personal loan or some other form of credit, such as a home owner loan or credit card at some point in their lives, even if they are currently completely loan and debt free and most of these loans will have been assessed by using the individual’s credit score.

Banks, building societies and other loan and credit card companies all use some form of credit scoring system to assess a potential borrowers financial status before they are prepared to offer them a personal loan, home owner loan, credit card or overdraft facility and in many cases this is the single most important piece of information a lender will obtain before offering a loan.

A credit score takes into account various different factors from a person’s financial situation and checks this information against a number of databases in order to establish credit worthiness and whether or not a particular individual will be able to get the loan they applied for.

In order to be accepted for a loan, the lender will have a minimum credit score which a potential borrower must achieve before they can be accepted for the loan. This score is likely to vary between different lenders, as they all assess individuals on a different basis and set different standards on their lending criteria for minimum acceptance levels for a new loan.

For a lender who only offers loans to prime customers at the cheapest loan rates, the amount required on a credit score is almost certainly going to be much higher than it would be for a lender who operates in the sub prime market, or offers bad credit loans.

Similarly, for someone who is applying for a new home owner loan or mortgage is likely to require a higher credit score than a loan for 65 per cent loan to value, as the risk for that particular loan is much higher and therefore the lender needs to take more care in assessing the borrower.

 This helps to protect both the lender, as well as the borrower from the dangers of irresponsible lending and borrowing and helps ensure that the borrower is able to afford the loan repayments once the loan is fully up and running.

A potential borrower needs to know what sort of information is going to be used in their credit score when they apply for a new loan or any other form of credit, so what factors are a lender likely to consider before they offer a new customer a loan?

Firstly a lender will check name and address details for the borrower, usually including an address history of at least three years. The name needs to match up with the address listed on the electoral role for the area to prove residential status, otherwise a loan may be declined, or at least more information will be required from the borrower. Similarly, if names have been changed through marriage for example, this needs to be altered on the electoral role and other official documents.

The next area a lender will look at is an applicant’s employment history. This will take into account whether a person is employed or self employed, if their employment is permanent, temporary, part time, or on a contract basis and whether or not they are under any threat of redundancy. This checks that the borrower will be able to continue with the loan repayments over the long term of the loan.

The lender will also look at a potential borrower’s income, both from their employment and other sources, such as benefits. This ensures that the monthly loan repayments will be affordable to the borrower from the income they receive. This will be assessed by providing pay slips or P60 documents, or accounts in the case of self employed people, or proof of other income such as sight of the letter confirming any benefits.

Of course, income alone is not sufficient to determine whether or not a person will be able to afford a loan, outgoings also have to be taken into account. This will include the cost of living, which will be much higher if the applicant has a dependant family or children. Other outgoings will include mortgage or rent payments, any maintenance payments, and especially any other personal loan or credit card repayment amounts.

By checking all of the above factors, a lender will be able to determine a disposable income level. The more disposable income a person has, the better their credit score is likely to be, although other factors may reduce this initial score.

One of the most important factors in credit scoring, is the amount and number of outstanding credit and loan agreements a person already has, as well as how these finances have been managed over the time.

If someone has a large amount, or high number of existing loans and other debts, this could reduce their credit score and if a person has a poor credit history through things like loan arrears and missed, or late, payments on their loans and other debts, this could have a dramatic effect on their credit score. If a borrower can not handle their existing loan repayments, how could they be expected to manage yet another loan repayment or credit commitment?

However, having existing loans can be beneficial to a person’s credit score, particularly if it has been well managed over the period. If a lender can see that a borrower has maintained their repayments on an existing loan or credit agreement, this can actually enhance their credit score, as it shows that they are able to manage their finances adequately.

Similarly, if a person has never had any form of credit at all in the past, this could go against them, as a potential lender has no evidence to support whether or not the applicant will be able to manage the monthly loan repayments.

So how does someone improve their credit rating?

Firstly they can check their credit file at one of the main credit reference agencies: Equifax, Experian or Call Credit. This will show any outstanding loan and other debt commitments, as well as how these have been maintained. It will also show the registered address history for the individual.

Any loan arrears or missed repayments should be brought up to date to show a clean credit history, although this could take some time to take effect on the overall credit score.

Although it may seem strange, for someone with no credit history at all, taking out a small credit agreement, such as a credit card and then making a purchase on it and paying the amount off the next month, will also improve their credit score, as this will then show some form of credit history, albeit brief!

The main difference between people living in the UK and most of the rest of the world, is our desire to own our own home and the phrase about an Englishman’s home being his castle, is often truly the case, as many individuals want to own the best home they possible can, with the largest property in the most desirable areas.

People often talk about the housing ladder in the UK, the process by which home owners keep moving house, taking on a new and larger home owner loan in order to live in a nicer property, as their income and equity in their existing home increase.

However, over the course of the past three or four years, things have seen a significant change within the housing and home owner loan market, with property prices falling instead of increasing and mortgages and home owner loans becoming harder to obtain due to tighter lending criteria from banks and building societies.

As a result of this, many people who may have otherwise moved house, have decided, or been forced to remain in their existing home for a while longer than they originally intended and rather than trying to move house, many home owners have instead spent time and money on improving their existing home, either to make it more pleasant for them to live in, or to increase the value when they do eventually come to sell it.

Whilst some fortunate individuals are able to fund these improvements from their savings, the majority of people often need additional assistance in funding their projects, in the form of a home improvement loan.

Home improvements can range from some simple and relatively cheap new decorations, or even a lick of paint, to something like a new bathroom or kitchen perhaps, all the way through to major extensions and structural changes to the property.

Clearly the cost of the work being undertaken will depend on the size and nature of the home improvements being planned, and similarly, the type of loan which would be the most suitable solution will vary depending on the expense and type of work being undertaken.

For small and relatively inexpensive improvements, such as straight forward decorations, an unsecured loan is probably the best option, as these are often the only type of loan which is available to a borrower who wants less than £5,000, for example.

Although the high interest rates charged on an unsecured loan make them more expensive than most other types of loan, they can be quite flexible, do not take much effort to set up, do not have any initial fees or charges to pay and can often be repaid at any time without early redemption penalties.

For larger works on a property, such as a new bathroom or kitchen, which can usually cost well in excess of £10,000, a secured loan may be a more suitable option, although many may still prefer to take out an unsecured loan as this does not place an additional legal charge from a lender on the property.

A secured loan, or second legal charge loan, uses the property as security for the loan, thereby reducing the risk for the lender, which in turn can usually make the loan cheaper than an unsecured loan, although if the borrower defaults on the loan repayments, then their home could be at risk of repossession by the lender.

As home improvements such as kitchen or bathroom are major features of a person’s home and can add considerable value to the property, a secured loan could well be a sensible and justifiable option to fund the work to be carried out.

An alternative option to raise capital for home improvements, is to use the existing mortgage or home owner loan which is already secured on the property. Many banks and building societies will allow borrowers to take a further advance on their home owner loan or mortgage, particularly if the purpose of the loan is for home improvements, as the lender already holds security over the property and any improvements are likely to increase the value of the property and therefore reduce the lenders risk.

Not all mortgage deals will allow a further advance, but many mainstream lenders will be happy to look at offering a loan, provided there is sufficient equity remaining in the property after the loan has been advanced. In some cases the additional loan could even be at the same interest rate as the main home owner loan or mortgage, making it an extremely cheap option.

If a further advance is not an option, or the borrowers wants to shop around for a cheaper loan option for their main mortgage, a remortgage could be a suitable solution. This could combine getting a better deal on the main home owner loan, as well as releasing some of the equity in the property to pay for the home improvements.

Although taking out a home owner loan or mortgage can incur initial costs, such as arrangement fees, valuation fees and legal fees, many remortgage deals will offer a free valuation and legal fees, with any arrangement fees being added to the loan.

Just because a fee has been added to the loan does not mean the cost has gone away. In fact by adding fees to the loan, the overall cost of the loan increases, as interest is charged on the fee amount as well as the loan advance.

For major property works, such as building an extension, the cost of the improvements may exceed the available equity remaining in the property. In such cases, a new build home owner loan is often the only option.

A new build loan will release the money from the total advance in stages, as the work develops. This allows the lender to keep the level of the loan less than the total value of the property, thereby maintaining their security. Regular inspections of the work will revalue the property and advance further funds at appropriate stages of the work.

As with any type of borrowing, taking out a home improvement loan is an important step which should not be taken lightly, as any mistakes could work out to be extremely expensive. It is therefore sensible to take professional advice from an independent financial adviser or loan broker, who can advise you on the best type of loan for your particular needs, as well as the risks associated with each option.

As a nation, the average individual living in the UK at the moment has the highest level of personal debt on personal loans, credit and store cards and overdrafts, than they have ever had at any other time in the history of the country and the levels seem to be growing at an alarming rate.

Whilst many people have huge outstanding balances on their personal loans and credit cards, largely due to irresponsible lending and borrowing in the past, current economic conditions in the UK have meant that many individuals are not getting the pay rises which they may have been expecting, or in worst cases, are suffering overtime bans, job losses and redundancy.

This problem is leaving many people in the situation where they still have the commitment of large loan and credit card repayments, coupled with a rising cost of living through increased food and fuel prices, along with the recent VAT increase, yet have a decreasing, or at best, static income.

 The inevitable result in this sort of situation is that a person becomes unable to manage to keep on top of their monthly financial commitments, in particular their personal loan, credit card and home owner loan repayments, which can end up with an individual destroying a previously perfect credit rating and being unable to get any form of credit or cheap loan.

If a person who is struggling with their loans and other debts leaves the problem until this happens, they become limited in the choice of debt solutions which are available to them. In many cases, bad credit means that someone will need a debt management plan, or an IVA (Individuals Voluntary Arrangement), or in extreme cases even bankruptcy.

But if an individual recognises the early signs that they could be facing a problem with their loans and other debts, a much simpler and cheaper option is available to them which will save their credit rating and give them the disposable income they require to cover their other bills.

We are, of course, referring to a debt consolidation loan, which is probably one of the main reasons for anyone to take out a personal loan at the moment and can be a simple and yet one of the most effective solutions to a person’s debt problems.

As most people will already know, a debt consolidation loan allows an individual to roll up all their various loan and credit card debts into one personal loan, with just one easily manageable monthly loan repayment, which is normally significantly cheaper than the total repayments of all the previous debts.

As with any type of loan, there are advantages and disadvantages to taking out a debt consolidation loan and a borrower should consider these factors carefully before committing to a new loan for this purpose.

Before applying for a debt consolidation loan, the borrower should check their existing credit agreements on their loans and cards which they intend to consolidate, along with the current rate of interest which they are paying.

If someone has a particularly cheap loan with a low rate of interest, there is little point in transferring this to a more expensive debt consolidation loan. In other cases, an existing loan may have an early redemption penalty on repayment before the end of the term and this could also cancel out the benefit of transferring the debt to a debt consolidation loan, even if the loan rate is cheaper.

The interest rate charged on a debt consolidation loan is usually cheaper than those applied to the debts being consolidated, due to the fact that the loan is for a greater sum and therefore the interest rate being charged becomes cheaper, particularly if the loan is for more than £7,500, where interest rate suddenly drop, as this is the start of the desirable lending amounts for banks and other loan companies.

The other reason that a debt consolidation loan usually works out much cheaper than the total of all the previous loan debts to be consolidated, is due to the fact that in most cases, the loan is for a longer term than the original debts.

Whilst this has the effect of reducing the monthly repayments significantly, freeing up the much desired disposable income for the borrower, these repayments will be made for a much longer period, which could mean that the debt consolidation loan ends up costing the borrower more than original debts would have done over their shorter terms.

A debt consolidation loan can take the form of either an unsecured loan or a secured loan, which largely depends upon the amount of the initial loan. For smaller debt consolidation loans of less than £10,000, an unsecured loan would almost always be the solution, as many secured loans do not consider amounts less than this sum.

Between £10,000 and £25,000 either an unsecured or a secured loan could be a solution, depending on a particular borrower’s needs and requirements and, of course, whether or not they are a home owner. For larger loans of £25,000 plus, a secured loan would be the only option and this could take the form of a second charge secured loan, or even a full remortgage, which could be the cheapest loan option of all.

Whilst a secured loan usually has a cheaper rate than an unsecured loan, many borrowers are uncomfortable with this option as it has the effect of securing old, previously unsecured debts onto their main home, which increases the risk of them losing their house in the event of them defaulting on their debt consolidation loan.

To summarise, a debt consolidation loan can be an extremely useful solution for someone when it is used wisely and although there are some disadvantages with them, this should be one of the first options to consider for someone who is struggling with their debts.

As with any type of loan or debt, a debt consolidation loan should be considered carefully before jumping at the first solution which presents itself. A borrower should consider the drawbacks of such a course of action, as well as the positive aspects and shop around to ensure that they obtain the best loan deal they possibly can to suit their circumstances. If in doubt, they should consult a professional financial adviser or loan broker who can help them to find the best solution for their particular needs.

For the past couple of years or so, since the onset of the credit crunch, the secured loan market has all but disappeared from the loans market place. This has been largely due to smaller loan companies, as well as some larger lenders, being unable to obtain the necessary fund on the wholesale money markets to be able to offer loans in the first place.

One of the other main factors which has affected the secured loans market, has been falling property prices having the effect of reducing the available equity which home owners hold in their property. This, coupled with the fact that lenders have introduced much tighter lending criteria for their loans has meant that many would be borrowers have been rejected for a secured loan, simply on the grounds of not falling within the maximum loan to value limits allowed by lenders.

The economic situation in the UK in recent years has left many individuals extremely reluctant to take out any kind of loan, but in particular a secured loan which could place their home at risk in the event of them being unable to keep up with the monthly loan repayments.

These factors, coupled with a reluctance from lenders to offer secured loans to anyone with anything other than a perfect credit history, has led to the significant decline in the secured loan market in recent years, which in turn has caused several well known and large loan companies and brokers to either withdraw temporarily from the market, or close their doors altogether.

But enough of such negativity. Many potential borrowers will be wondering when and if, the secured loan market will return to the UK and how things are likely to have changed from the easy times of being able to get a cheap loan prior to the credit crunch.

Towards the end of last year, the economy of the UK started to show signs of improvement, albeit extremely slowly and this in turn has encouraged a growing number of lenders to tentatively dip their toes back into the secured loans market.

Currently, any loan company, or loan broker, which offers secured loans, must hold a consumer credit license with the Office of Fair Trading (OFT). But since the announcement of the Mortgage Market Review (MMR) from the Financial Services Authority (FSA), there has been growing speculation that taking out a secured loan may be subject to additional regulation, in the same way that mortgages and first charge home owner loans are currently regulated.

If such regulation is introduced, it will undoubtedly provide a much greater level of protection for consumers who take out a secured loan, although on the negative side, it could lead to even tighter lending criteria and affordability issues than potential borrowers currently face, as well as possibly increasing the overall cost of a secured loan, due to the increased costs to loan companies of having to deal with the additional regulatory factors and paperwork which would inevitably arise in such circumstances.

At the moment, secured loans are not the cheap loan option which they used to be prior to the credit crunch, but as lenders slowly start to return to the market, so does the level of increased competition between loan companies and this will undoubtedly have the effect of bringing down costs, although any increases in the Bank of England base rate of interest will clearly have a direct influence on the monthly cost of any new loan.

The best loan deals on a secured loan are still always going to be only available to the most attractive borrowers, that is, those individuals who have a perfect credit history and only require a low loan to value ratio on their secured loan.

Having said that, we are already beginning to see lenders increasing their maximum loan to values, with some loan companies already offering loans for up to 90 per cent loan to value for a borrower with a clean history, although the additional risk to the lender of offering a loan at this level, is usually reflected in the overall cost of the loan, both in arrangement and booking fees, as well as the interest rates charged.

Similarly, some lenders are now even prepared to look at potential borrowers who may have a poor credit history. Whether or not they are accepted for the loan they want and how much their loan will eventually cost, will obviously depend on the nature of their credit problems and the reasons behind why they got into financial trouble in the first place.

Despite this relaxing of loan criteria, it is still fair to say that, although bad credit loans are returning to the market place, they will only be available for those borrowers with just a slightly impaired credit rating and at the moment, only for secured loans with a relatively low loan to value ratio.

Potential borrowers with a long string of bad credit and who require a high loan to value ratio are still unlikely to be able to get the loan they require for some time to come and it seems unlikely that lending criteria will ever relax back to the levels which were seen prior to the credit crunch, thereby leaving those with a particularly bad credit record still being rejected for any kind of mainstream loan.

As loan companies do return to the secured loans market, many are choosing to make their products available exclusively through financial advisers and loan brokers and this makes perfect sense for a potential borrower looking for the best deal on a secured loan.

By using the services of a financial professional, a borrower will not only get suitable advice on the best type of loan for their needs, but also ensure that the loan is affordable over the long term and give the borrower the cheapest loan deal for their circumstances, from the most reputable lender available.

There is undoubtedly a great build up of demand for secured loans from potential borrowers at the moment and as the year progresses, we could hopefully see a new range of secured loan products entering the market, which has been specifically designed to meet this growing need.

Anyone who has applied for any kind of loan in recent months, may have become particularly frustrated about the lengthy time the loan application took and how many in depth questions the lender was asking about their personal financial position, as well as wanting documentary evidence to support the loan application.

One of the main reasons for all the additional questions and probing into personal finances when applying for a loan is due to the increasing level of fraud, which banks, building societies and other loan companies are seeing on a regular basis on the loan applications which they receive.

As loans seem to be getting harder to be accepted for, more and more potential borrowers are tempted to exaggerate things such as their level of earnings slightly, or fail to mention another loan which they may already be making repayments on. This may all seem very innocent to the loan applicant, however, including false information of any kind on an application is loan fraud.

This is becoming a particularly large problem in the home owner loan and mortgage sector of the loan market, where the loan amounts are usually for much larger amounts than a typical unsecured loan and applicants are often stretching their finances to the limit in order to obtain the loan they require.

Last year, home owner loan and mortgage fraud cost UK lenders somewhere in the region of £1 billion and this figure seems to be rising on a year by year basis. Many individuals hearing this news may have little or no sympathy for banks and building societies who are suffering these losses, but ultimately these costs are being passed on to genuine borrowers and are being reflected in the cost and interest rates being charged on the next loan which you may take out.

A recent survey, which has been conducted by Beverley Houlbrook, a fraud consultant at CoreLogic, looked at the most common types of home owner loan fraud being committed in the UK at the moment, based on information obtained from some of the country’s biggest lenders and loan companies. The top six reasons for loan fraud are as follows:

Top of the list and the most common type of loan fraud is not surprisingly, over stating a person’s level of income on the loan application. Many individuals say that they are earning more than they actually are, in some cases by thousands of pounds a year, but are usually caught out once the lender asks for proof of income through things such as a payslip or P60. Yet, overstating income accounts for around 36 per cent of all home owner loan fraud.

The second most popular type of loan fraud is where applicants try to conceal details of employment status. 17 per cent of fraudulent loan applications are where an applicant is actually self employed, rather than a company employee, or is on a probationary period with their employer, or only on a short term contract, rather than a permanent position.

14 per cent of fraudulent loan applications were where a person had applied for a traditional residential home owner loan or mortgage, stating that they would live in the property, when the purchase was actually for a buy to let loan.

In the majority of cases, self employed loan applicants have been asked to provide details of their yearly accounts in order to verify income. But in 11 per cent of fraud cases, these financial accounts were either completely falsified, or did not reflect the true profits (or lack of them) of the business in question.

 A further 11 per cent of fraudulent home owner loan cases, were where the applicant had provided an incorrect valuation of the property on which the loan was to be secured, over valuing the property in order to be able to reduce the loan to value ration used by the lender and therefore obtain a cheap loan rate. In some cases valuations were exaggerated by up to 500 per cent.

Finally, 6 per cent of loan fraud was committed by professionals working in the home owner loan market in order to get their business to complete. This could include people such as accountants, solicitors, valuers, surveyors and mortgage advisers and loan brokers.

Whilst in many cases, some of these fraudulent cases are simply ordinary people who are desperate to be accepted for a home owner loan in the current tough economic climate and decide to cut a few corners, or tell a few white lies in order to get their loan, in other cases it is well organised professional criminals who are prepared to go to great lengths in order to defraud the system.

With the total amount of lending on home owner loans and mortgages falling on a month by month basis at the moment, it is becoming more difficult for the average man in the street to be accepted for a loan and therefore the incidence on loan fraud is likely to continue to increase.

As we said previously, home owner loan fraud accounts for approximately £1 billion every year, a cost which is eventually passed on to legitimate borrowers. There are somewhere in the region of £1.165 trillion worth of home owner loan in the UK at the present time.

 This means that every home owner loan customer in the UK is currently paying an average of £85 every year, for every £100,000 of loan they have outstanding, just to cover the cost of loan fraud.

This is why banks and building societies have been forced to tighten up their lending criteria and increase the level of checks which they carry out on all loan applicants. So if it seems like your lender is asking you to jump through hoops for information when you apply for your next loan, it is to try and combat the rising level of loan fraud and therefore protect you from the effects of loan fraud and hopefully reduce the eventual cost of your loan.