Best Loans Articles

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.

People living in the UK currently have the highest average level of personal debt on personal loans and credit cards that they have ever had and the figure continues to increase as individuals carry on borrowing more money through loans, overdrafts and credit cards.

Whilst in the past, the majority of borrowers have been able to handle their finances and personal loans in a responsible manner, keeping up with loan repayments and not falling into arrears, the recent credit crunch and recession have impacted on many individuals.

Unemployment and loss of income through pay freezes and overtime bans has left many borrowers who were previously in control of their loans, finding themselves in financial difficulty and falling behind on their loan and card repayments, thereby destroying their previously unblemished credit record.

Despite the lessons which should have been learnt over the course of the past three or four years and the record level of loan debt accrued by individuals in the UK, it seems that many people in this country are still in the habit of buy now, pay later, giving little or no regard to the eventual consequences of having to repay their personal loans and other debts.

Many individuals have been lured into a false sense of security with their financial situation, due to the fact that the repayments on their home owner loan or mortgage have fallen significantly to give them more disposable income each month, despite the fact that their other bills, such as gas and electric and food have increased to compensate for this.

The fact remains, that many people have used up any savings they may have had in the past and are up to their necks in personal loan and credit card debt and yet they are still not prepared to reduce their outgoings and standard of living, or the amount they spend on luxury items every month.

With Christmas fast approaching, most people are now starting to think about their plans for the festive season and beginning to organise their Christmas shopping, as well as the various parties and nights out that normally go along with the celebrations and although many individuals may worry slightly about how they are going to be able to pay for it, this never seems to be an eventual problem and they always have enough money to see them through to the new year.

Even though a large number of individuals are already struggling to stay on top of their personal loan and credit card debts, many of these people will happily go out and take out yet another personal loan, or run up an even bigger credit card debt, just so that they can cover the cost of Christmas and manage to buy all the various presents they need to.

Although taking out another personal loan may solve the short term problem of immediate costs during the current month, once January arrives and the bills start to land on the doormat, that Christmas loan may not seem like such a good idea, particularly since many people will still be paying off the loan they took out in order to pay for last Christmas!

Those who feel they need to take out a loan at this time of year should consider their options extremely carefully, as they will be left with repayments for a long time to come. A potential borrower should not only think about how much money they need right now, but also about their regular monthly outgoings and other loan debts and how all their payments will be managed on a regular ongoing basis, including the additional cost of the new loan.

For those individuals with only a small amount of outstanding credit and a clean credit history, it should be relatively easy to obtain a cheap loan to meet their needs, although typically, these are generally not the sort of people who take out regular loans, which could be why they have such a good credit rating!

For people who have several outstanding personal loans and credit cards, it may be harder to get the finance they are looking for through yet another small personal loan, as all the existing loan repayment amounts will affect their affordability of any new credit, even assuming that all the repayments are fully up to date.

In this situation, the best option may be to consider a debt consolidation loan, in order to combine their existing loan and card debts into one large loan at a cheaper interest rate, although this could end up costing them more in the long run, if they take the debt consolidation loan out over a longer term than the original debts to be repaid.

If used sensibly, a debt consolidation loan could free up enough disposable income to allow the borrower to cover their Christmas costs without resorting to taking out another loan.

For those individuals who do need to take out a personal loan at this time of year, they should take great care and be cautious about how much they borrow. They should also shop around the market place to find the best loan deal to suit their needs and take professional advice where appropriate in order to obtain a cheap loan.

Of course, the best option altogether is to not fall into the trap of taking out a loan for a short term fix to a problem, as the solution is likely to take a long time to repay. It is far better to manage existing loan and card debts and overpay on these wherever possible, to free up more disposable income for times in the year when you know there is going to be additional expenses, such as Christmas and holidays.

If in doubt, the best option is to not borrow money at all. If you are struggling to manage your finances and feel that a personal loan might be the solution, seek advice from a professional adviser or if you are struggling with existing loan debts, talk to a debt management specialist, either through a private company, or through one of the many charitable organisations which exist in order to help and advise consumers in financial difficulty.

Many different people in the UK need to borrow money through loans for a variety of different purposes. Whether it is for the purchase of a luxury item, or to buy a house or make home improvements, or simply to consolidate other existing and more expensive loans and card debts, for someone who may not be particularly familiar with the different loan options on offer, choosing the best loan to meet their circumstances can be a daunting prospect.

A certain type of loan could be more likely to be suitable for a specific purpose than a different loan may be and therefore this article is intended to give a little bit more insight into which type of loan may be suitable for various borrowing needs.

There are many different types of personal loan available to choose from, from small pay day loans and personal loans supplied by doorstep lenders and pawn brokers, all the way through unsecured loans to secured loans and mortgages, or home owner loans.

We will look at the various types of loans, starting with the smallest first and building generally upwards.

Some of the smallest loans available are payday loans. These are intended as a short term loan of usually less than one month and are designed to provide a small cash amount to see someone through until their next pay day, when the loan will be repaid in full.

Although these loans can be extremely useful for those people who have difficulty managing their money to the end of the month, they are usually an extremely expensive form of borrowing, often charging interest in the hundreds of percent APR (Annual Percentage Rate). In many cases, someone who is looking at such an option may be better off asking their bank for an overdraft facility.

Many people who do not have access to a personal loan through the more traditional route of a high street bank, for example, often use doorstep lenders to access a loan. Once again, these loans are usually for small amounts of just a few hundred pounds or so and may be collected weekly or monthly by the loan company on a door to door basis.

Doorstep loans are usually available to those people with a poor credit rating, who would probably be turned down for a loan from a bank. Once again, these are very expensive types of loan and although the sums borrowed are relatively small, the interest can soon add up, leaving people in a difficult financial position.

The next step on the ladder would be unsecured loans through a traditional high street bank or other loan company. Unsecured loans are usually available for relatively small sums of money starting from around £1,000 and going up to a maximum of £25,000, although some lenders will only allow smaller loans than this amount.

The term of an unsecured loan can also vary, from one or two years, usually up to a maximum of around ten years, although once again these vary between different lenders. These loans are generally much cheaper than those mentioned previously, but can vary greatly in cost, depending of the amount and term of the loan.

The smaller the amount of money being borrowed, usually leads to a higher rate of interest being charged on an unsecured loan. For larger loan amounts, the interest rate usually drops and it can sometimes be beneficial to borrow a larger sum than was originally intended, although borrowers should be careful not to borrow too much simply for the sake of a cheaper loan rate.

Unsecured loans are probably one of the most popular types of loan and can be used for almost any purpose, from things like buying a car, paying for a holiday or other luxury item, or simply as a debt consolidation loan to clear other existing and more expensive loans and credit cards.

Longer term loans will lead to lower monthly repayment amounts and whilst this may help to ease the monthly budget, interest will be paid on the loan for a longer period of time and therefore the overall cost of the loan could end up being significantly higher than one over a shorter term.

For larger loan amounts over a longer period of time, a secured loan is the most suitable option. Secured loans are only available to home owners, as the loan takes a legal charge on the borrower’s property as security for the loan. If the borrower should default on a secured loan, the lender has the right to reclaim their losses from the value of the property held as security, which can often mean repossession of a person’s home, although this should only be adopted as a last resort by the lender.

Secured loans usually start at around £10,000 and go upwards, with the upper limit of the loan usually dependant on the affordability for the borrower and the value of the asset being used as security for the loan.

Because a secured loan offers some form of security for the lender, this reduces the risk of them not getting their money back and as a result of this, interest rates on a secured loan are usually significantly cheaper than an unsecured loan, although there could be additional costs such as valuation and legal fees to be considered.

Secured loans are used for many purposes which require larger sums of money, such as home improvements or large levels of debt consolidation. They are probably not really suitable for things like a car loan or holiday loan, which would need to be repaid over a shorter period of time.

The term of a secured loan usually starts at around five years and can go up to 25 or even 30 years, depending on the personal circumstances of the borrower.

Usually, the largest loan anyone will ever take out is a mortgage or home owner loan. These are simply another type of secured loan which are designed specifically for house purchase. Mortgages normally have some of the cheapest loan interest rates of any type of loan, although the cost of a mortgage can be very great indeed, as they are usually for large amounts of borrowing over a long term, often 20 or 25 years.

Mortgages are currently the only type of loan which are regulated by the Financial Services Authority (FSA) and as such offer borrowers a much higher level of protection than many other types of loan.

The above is a very brief outline of the different types of loan which are available on the market at the moment and although it is intended to give an overview of what is available to borrowers, it is not definitive and there are many variations.

Taking out any kind of loan is a large commitment and a potential borrower should think very carefully before rushing into the first loan which is offered to them. If there is any doubt as to which is the best way to borrow money, a person should take professional advice from a financial adviser or loan broker, who will be able to guide them through the various options and find the most suitable loan to meet their needs.

The average person living in the UK at the moment has the highest level of personal debt they have ever had. Whether this is through unsecured personal loans, secured loans, home owner loans and mortgages, credit cards, overdrafts or other types of credit, we seem to have become a nation of borrowers with the attitude of buy now, pay later.

For many individuals with personal loans, this is not a particular problem in the long term, as they are in control of their finances and able to manage their loans and other debts in a responsible manner, as well as having sufficient regular monthly income to service their loan debts.

However, this is not the case for everyone who has outstanding loan debts. Whether it is through bad financial management and overspending, or due to circumstances beyond their control, many individuals are currently struggling to stay on top of their loan repayments and other debts and in a large number of cases, are actually falling behind in their repayments, building up a growing level of loan arrears.

The debt problems for many borrowers have been exacerbated recently by the effects of the credit crunch and the recent recession. Many individuals have been made, or are facing redundancy, whilst others have had their working hours reduced, or have lost bonuses or overtime, thereby reducing the amount of disposable income they have to service their loans and other debts.

 Other borrowers, however, are simply using this as an excuse and are continuing to live beyond their financial means, continuing to run up their credit card bills and take out new personal loans for unnecessary luxury items.

There are various ways that an individual is able to control their finances better and manage their loans and other debts in a reasonable manner, but the most important factor is that they actually have to want to sort the situation out, rather than just pretending that they are doing all they can, whilst taking out yet more loans and credit.

So what are the options available to someone who genuinely would like to reduce their loan debts and retake control of their own finances?

Firstly, they should look at what they are currently spending their money on, in addition to the regular essential household bills and loan repayments. A large amount of money may be saved every month by simply not spending as much on non essential luxuries.

On a quick trip to the shops you may only spend £10 or £20 on a couple of small items, which could be considered to be negligible amounts, but if a record is kept of every penny spent over the course of a full month, this could run into hundreds of pounds, which could be put to better use paying off loans and credit card bills.

By keeping a record of every payment and writing down what has been spent throughout the month, including luxury items as well as essentials and regular commitments, such as loan repayments, it could well become instantly apparent where some immediate savings could be made.

Essential bills and living costs could be another area for saving. Costs could be reduced by shopping around for cheaper utility providers, such as gas or electricity, or looking for a better deal on a home owner loan, for most people the largest monthly expense they have to pay, as well as finding a cheap loan deal for their unsecured loan debts.

There are even savings to be made on the weekly supermarket shopping trip. It is estimated that somewhere in the region of a third of all the food bought at the supermarket ends up being thrown away. By planning a weekly menu and sticking to it, as well as possibly buying a cheaper brand of product, a family could realistically reduce their food shopping bill by half every month.

 It is then time to look at any outstanding bills for personal loans and credit cards. Very often borrowers may have several different creditors and it can be a daunting prospect sorting out which loan to repay first.
A good starting point is to make a list of all the various creditors, whether this is on a personal loan, credit card, store card or overdraft. Then find the interest rate payable on each agreement (this will usually be on the latest statement, but the lender will be able to tell you this if you contact them) and the outstanding balance of the loan or debt.

In most cases, common sense dictates that the most expensive loan or credit card is repaid first and then use the savings made on repaying that debt to overpay of the second most expensive debt and so on. However, if someone has a loan or card with a relatively low balance, it could be a good idea to clear this first, as this will free up some disposable income quicker.

Never just make the minimum payment on a credit card, always pay as much as possible. Similarly, wherever possible make additional overpayments on any personal loans in order to reduce the balance sooner and save unnecessary interest. In the case of a loan, you should first check with the loan provider to make sure that there are no penalties applied for additional or early repayment.

For someone with a number of unsecured loans and credit cards, one option may be a debt consolidation loan. This combines all the various loans and card debts into one loan with just one repayment each month. Care should be taken with this option, as although the monthly repayments are likely to be significantly cheaper than the previous debts, over the long term a debt consolidation loan can often work out more expensive, due to interest payments being made over a longer period of time.

If someone is still struggling with their finances and unable to keep up with their loan repayments and other debt commitments, there are plenty of places where they can turn to for help and advice. Debt help charities such as the Citizens Advice Bureau and Consumer Credit Counselling Service offer free consumer help and debt advice.

Additional financial help and advice can be obtained from financial advisers, or a specific debt management company. Although these may charge for their services, in many cases this could be money well spent for the services and advice provided, but compare costs and service provided before committing to a particular adviser.

Finally, taking some or all of these various steps will help to resolve finances and debt problems. It is not likely to happen overnight, but eventually you will become free of loan and credit card debt. It is essential to learn from previous lessons and manage your finances in such a way that the situation is not likely to arise ever again.

We’ve all heard that old saying that “there’s too much month for the money”, well it seems as though this phrase has never been more relevant, as a growing number of people living in the UK are starting to depend on short term, expensive Payday loans.

Payday loans have been around for many years and are short term loans, usually for a term of less than a month and for small amounts of borrowing, in most cases no more than a few hundred pounds at any one time.

Payday loans are available from a number of sources, such as doorstep lenders, pawn brokers and online loan companies and are designed to provide an extra bit of cash for those individuals who have either overspent, or under budgeted for the month and have run short of money before their next salary cheque is due.

Whilst this type of unsecured loan can be particularly useful and beneficial for those who need extra cash for essentials to see them through to the end of the month, it seems that there is a growing dependence on payday loans, which is beginning to worry finance industry experts, as the number of loans being taken out has increased dramatically over the past few years.

The effects of the credit crunch and recent banking crisis are still having their impact on the UK economy and banks and other traditional lenders are extremely cautious about offering loans to anyone other than those with a perfect credit history, with the inevitable result that a large percentage of the UK population are left in the situation where they are unable to obtain an unsecured loan through a traditional route.

This is causing individuals to turn to more expensive forms of borrowing money, such as payday loans, log book loans, pawn brokers, doorstep lenders and in extreme cases, illegal loan sharks.

Whilst most of these types of loans, other than loan sharks, offer a valuable and in many cases necessary service to a certain type of client who can not obtain a loan elsewhere, there are growing concerns that too many individuals are becoming too dependant on such borrowing.

A new report, published by Consumer Focus,  has revealed that the number of payday loans being take out has grown by more than four times over the course of the past four years, with somewhere in the region of 1.2 million individuals taking out loans for a total of £1.2 billion over this period.

Although payday loans are an extremely expensive way to borrow money, often having an APR (Annual Percentage Rate) of anywhere between 1000 and 2000 per cent, the impact of this cost is usually minimised by the short term of the loan. Having said that, the typical cost of such a loan is normally between £13 and £18 for every £100 borrowed, but can be as much as £30 per £100 of loan, with more expensive providers.

The real concerns arise when a borrower is unable to repay the loan once they receive their pay cheque and they are often hit with late payment penalties and spiralling interest costs as the charges and rolled up interest start to add up.

An average payday loan of £300 would normally cost somewhere in the region of a total of £360, if it was fully repaid with a month of taking it out. However, if repayment is missed and interest starts to add up, the loan could end up costing around £660 to repay after just six months.

The United States have had their equivalent of payday loans for considerably longer than the UK and there are great concerns over the amount of debt being accrued by some individuals who keep taking them out and never repaying the total amount. This has led to the position where payday loans have actually been banned altogether in certain states.

Consumer Focus, who conducted the survey in the UK are concerned at the rate of growth and popularity of payday loans, as borrowers become more desperate for money and predict that the industry could grow by as much as another 45 per cent in just a short period of time.

The typical borrower who takes out a payday loan is often single, under the age of 35 and earning less than £25,000 per annum. The majority of these people are not likely to be concerned over the interest rate being charged on their loan, just in the fact that they have some cash in their pocket to buy groceries with, or go for a night out with their mates!

Consumer Focus are concerned that at the moment there are no rules governing the use and sale of payday loans and vulnerable individuals can get in to financial trouble extremely quickly if they are not careful. As a result of this, they are calling for a review into payday loans with the intention of introducing new legislation to regulate such loans.

Consumer Focus acknowledge the fact that payday loans play an  important role in the finances of many borrowers and therefore do not wish to have them banned altogether, as this would encourage more people to turn to illegal loan sharks for their loans.

The new proposals are that payday loan providers take a more responsible attitude towards offering loans to individuals, in order to help their customers getting into unmanageable loan debt.

Consumer focus is proposing the following measures:

Borrowers should be limited to a maximum of five payday loans in any twelve month period and if five such loans have all been rolled up into one consolidation loan, the borrower should be refused any further credit and referred to an independent debt adviser.

Payday loan companies should carry out more detailed financial checks on potential borrowers before offering a loan and different loan companies should share information through a common data base in order to stop borrowers taking more than one loan out at any one time with a number of different lenders.

The main high street banks in the UK should help out by offering a realistic alternative to payday loans through offering more traditional short term cheap loans.

The use of social lending organisations, such as credit unions, should be encouraged and developed by the government and the financial services industry.

Marie Burton of Consumer Focus said “With the recent credit crunch, demand for short term borrowing has significantly increased despite the eye watering interest rates charged by some payday lenders. Such expensive rates can leave consumers who defer payments, or take out repeat loans, caught in a debt trap.”

“These products are controversial, but we don’t agree with calls for them to be banned. Outlawing payday loans could leave some borrowers vulnerable to illegal loan sharks.”

“Instead we need sensible safeguards now to stop borrowers becoming dependant on this high cost credit and prevent even more stringent controls being needed in the future. We also need banks to provide alternative short term credit to suit the needs of cash strapped consumers.”