Consumers Turn to Bad Credit Loans to Help Ease Pain

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As insolvencies continue to rise, more people are turning to bad credit loans as a useful alternative to conventional types of loans reports Andy Hygate from http://www.loansbadcredit.org.uk

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The credit crunch remains a reality for hard-pressed home owners. The Government has pumped billions into the banking system, yet home owners and would-be home buyers are still struggling to get mortgages they can afford. It's time we had less grandstanding and more action to get affordable credit flowing again.

While insolvencies continue to rise and more people lose their homes, banks are raising interest rates like never before. Meanwhile UK homeowners are forced to tap into savings to weather the recession. Many are taking out bad credit loans, which are a useful alternative to conventional types of bank or credit card loans. Bad credit loans are made to borrowers despite the fact that they have bad credit.

These days almost everyone in the UK has some kind of credit problem, which makes these alternative loans extremely popular, especially during dismal economic cycles like the one being experienced right now. For example, The Guardian reports that a record number of people in England and Wales became insolvent this summer. According to the Insolvency Service the number of personal insolvencies has increased more than 27 percent since last year and business bankruptcies have risen nearly 40 percent. As those companies go under, more workers become redundant - feeding the fuel of personal bankruptcies.

But many experts argue that a large part of the blame for this continued crisis lands squarely on the shoulders of banks, which are making record profits on various types of loans. The Telegraph recently ran a feature article, for instance, explaining that the difference between the interest rate that banks charge their own customers and the rate that the banks themselves pay to borrow money is historically wide. As a matter of fact, the gap is the largest it has ever been since the Bank of England began to track that data 15 years ago.

What makes this disparity between rates so distasteful to consumers is that British banks - supported by taxpayer dollars pumped into them as part of the government's emergency relief strategy - are currently paying an incredibly low interest rate fee of only one half of one percent. But although they are getting money from the government at a dirt-cheap price, they are turning around and hitting British consumers (who are in dire financial straits) with rates that are many times higher.

  • Banks are making, for example, approximately two full points of profit on their fixed rates loans this year, and about 80 percent of their loans are these high-interest fixed rate products.
  • Just two years ago, when the economy was in fine shape, lenders were only taking a profit of about 0.1 percentage on similar loans. Overdraft rates are have also broken a new record, soaring to almost 19 percent for the first time in history.
  • Popular 5-year £5,000 unsecured loan now carry average interest rates higher than 13 percent, whereas they averaged only nine percent before the recession.
  • Those Brits who do the right thing and save money are penalized too, with interest on their savings deposits that averages about one-tenth of what banks were offering a year ago.

An official at the Treasury was quoted in the Telegraph saying "The credit crunch remains a reality for hard-pressed home owners. The Government has pumped billions into the banking system, yet home owners and would-be home buyers are still struggling to get mortgages they can afford. It's time we had less grandstanding and more action to get affordable credit flowing again."

As the news seems to get more pessimistic, consumers have found some welcome optimism and credit flow through lenders who provide loans for bad credit. These unique types of loans are offered by companies that specialise in lending to people who have poor credit, a lower credit score, or problems in their financial past such as a repossession or bankruptcy.

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Andy Hygate
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