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Some are saying it has never been cheaper to borrow money, but is this right for all credit markets?

There are always times when people need money and to be honest it can be down to so many different reasons. Some people are looking for a large amount as they are looking to make some form of expensive purchase. This could possibly for a new car perhaps or they could be looking for funds for home improvements or maybe a new house itself. In the same way others could just need a small amount of cash as they need some help tiding them over until they are next paid from their employer. Perhaps they just have to settle some form of unexpected bill that has just arrived after they have spent the remainder of that month’s disposable income. Now, if people have money saved away, they can use this as required to pay for whatever they need. Some people may have enough saved away to pay for their requirement outright, where as others could at least put some money towards what they need or want. That is not always possible, so the chances are they will need to borrow the money from somewhere.

I think most of us by now know that when we need to borrow money there are a number of different options available to choose from. That is just one of the many different reasons as to why no one should ever rush into applying for finance. They must always explore all their different options before any financial application can be made.

From the financial marketplace these days’ people can have the choice of both short term loans and longer term loans when they need to borrow money. A common short term loan would be a payday loan which is typically very expensive and people only borrow the cash for a limited period of time. A short term loan is normally defined as a loan that has to be repaid back to the lender within a maximum of twelve months. A longer term loan in contrast is normally when people borrow more money and then they repay that debt back over a longer period of time, normally measured in years. In the latter example people may borrow many thousand and then they repay that debt back over many years. A mortgage for instance is a common type of instalment loan borrowing. While both of these types are solutions worth considering if a loan is needed, credit cards can also be a very common way to borrow. These allow people the chance to pay for many different items on credit as well as withdraw cash on credit up to a set limit that is agreed with the lender. The use of the plastic card themselves make this very convenient which is why so many people from all over the world have one or more of these of these credit cards.

Going back now to the longer term instalment loans. I have recently read an article through the Daily Mail and they have said that for some people, borrowing has never been as cheap as it is at the moment. The lenders offering certain financial products are really reducing their interest rates to try and entice borrowers to use their services and take out a loan from them.

Take a loan that is described Daily Mail article of the 8th January 2016. It shows how M&S have offered some borrowers the chance to take out a loan between £7500 and £15000 at a rate of just 3.3% That would mean if a person through M&S was to borrow £7500.00 they would be due to repay back £8146 in total, meaning that for borrowing that amount of money they would only pay back around £646 in interest. For such a loan amount that is a cheap way of borrowing. In the same way if they were to borrow the largest loan available of £15000 and repay by making 60 payments (over five years) of £271 the total amount repayable around £16260. Both loan examples are of five year repayment terms so the interest can vary if the loan is repaid back over a shorter amount of time. This actually works out to be the lowest interest rate on a personal loan since records began back in 2004.

Editor: This information was taken from the article described and neither we nor the author has personally validated this information for correctness.

These loans can be ideal for people who are looking to borrow money for a car or possible home improvements to name just a couple of things. Sometimes when a car is taken out on finance it can be done interest free but this is not normally possible unless they are brand new vehicles. Buying a new car is not for everyone so personal loans such as these could be the best option if a second hand car is to be purchased on credit. People can then look to pay back the loan over a number of years at an affordable rate rather than have to pay for these items outright. M&S loans are only one in many providers of such credit. There are so many different lenders out there to choose from, with a little research you may even find one with an interest rate lower than theirs.

At the other end of the spectrum are the payday loans. Since the Financial Conduct Authority has introduced a rate cap of 0.8% per day, which has had the effect of reducing the rates charged by many lenders, if you do a search for these there are many more ‘clustered’ around the upper limit of this cap. This is largely because, unlike companies such as M&S who are fighting for your business by undercutting all of the competition, the payday loans market, as it has been proved historically is not driven by price competition, but more by who will lend, speed and ease of acquisition. Until now this has almost quashed any form of price competition and kept rates very high for these borrowers. The Completion and Market’s Authority have, realising how unhealthy this is, has already started to take steps to bring this market in to line with others, albeit financial or otherwise. At some point (exact date to be determined), all lenders of short term and payday loans will have to be listed on a Short Term Loans Price Comparison Website. Not only will this allow easy comparison of rates, but lenders will be ordered on the basis of the cost of the loan. This will mean that we should see a model of lenders ‘undercutting’ each other to be in the top spots, which will drive the cost of borrowing down for the consumer.

While I don’t think we will ever see payday lenders charging rates of 3.3%, I think, following the implementation of this, that we will see a much more competitive market for payday loan customers.

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