Shop around for car loans and avoid PPI

August 30th, 2008

As the time for new number plate’s rolls around again, Consumers are being urged to dedicate more time to choosing the right car loan or finance package. The launch of the new 58 plates is expected to be preceded by a flurry of interest in car loans, despite the credit crunch.

However, Moneyfacts.co.uk has warned that choosing the wrong method of financing a purchase can be a “costly mistake”.

According to the firm, there are now more than 40 providers offering unsecured loans and the difference between the best and worst deals on a £5,000 loan can be £769. The company noted that for a £10,000 loan, this figure rises to £2,400.

It sounds obvious, but before opting for the convenience of forecourt finance, it’s worth checking out how this compares with other deals on the market.

Specifically when purchasing a new car, buyers ought to consider how quickly their car’s value may depreciate and take out a loan with a reasonable term, Moneyfacts.co.uk has suggested.

The Finance and Leasing Association recently reported that in the 12 months to June this year, half of all new cars were bought using dealer finance, compared with 46.2 per cent a year earlier.

Motorists who fail to shop around for car finance can end up paying thousands of pounds more in interest repayments than is necessary. The effort to shop for a cheaper deal at one end of the loan period always pays dividends at the other.

There are over 40 providers offering a range of unsecured loans and many offer different rates depending on if you apply online or over the telephone. The site named the cheapest provider of loans of £5,000 over three years as Sainsbury’s Bank.

Also in the car market, five motor dealerships have been fined by the Financial Services Authority (FSA) for mis-selling payment protection insurance (PPI). Between them the five were fined a total of £175,000.

The five dealerships are GK Group, George White Motors, Ringways Garages (Leeds), Ringways Garages (Doncaster), and Park’s of Hamilton.

The FSA said they had failed to check if the customers circumstances meant they might be excluded from claiming on a policy after it had been sold, and did not monitor the quality of advice being given by their sales staff.

I believe I have made my feelings about PPI clear over the last few months but for those not paying attention I shall reiterate. It is a scam! Avoid it at all costs! If you are concerned about making repayments on a loan, it is possible to purchase separate insurance which will almost certainly give you better cover and be more responsibly sold than that bundled with the original loan.

In June this year the Competition Commission found that people were being overcharged by the financial services industry to the tune of £1.4bn a year when they PPI policies.

It said this was due to a lack of competition, and suggested that one remedy might be a ban on firms selling the insurance when they take out loans. The wider publicity being given to the problems of PPI led earlier this year to the Financial Ombudsman Service receiving a surge of complaints about alleged mis-selling.

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Britain’s debt exceeds GDP for the second year running

August 25th, 2008

Britain’s cumulative personal debt has exceeded the income generated by the economy for the second consecutive year it has been announced.

According to accountants Grant Thornton, the total amount owed by consumers on credit cards, loans and mortgages hit £1.444 trillion for the 12 months to June. However, in the same period the country’s gross domestic product (GDP) stood at a mere £1.41 trillion. Despite the global downturn flattening the growth of personal debt and UK GDP over the past few quarters, debt levels continue to grow at a faster rate than the income the
UK generates.

Although there is no cause for panic as personal debt is covered by the UK housing stock, the figures clearly illustrate the continuing problem of growing personal debt levels in the
UK.

Experts predict that soaring consumer debt levels could fuel a huge rise in demand for debt consolidation loans and Individual Voluntary Arrangements (IVAs) both this year and in 2009.

The data suggests that the credit crunch has yet to halt the UK’s indulgence in relatively cheap borrowing.

Despite the global downturn flattening the growth of personal debt and UK GDP over the past few quarters, debt levels continue to grow at a faster rate than the income the UK generates.

If the property market and economy continue to weaken, the current levels of personal debt will become unsustainable and there will be a marked increase in personal insolvencies. Things are unlikely to get better in the short term. The credit crunch and recent rise in the number of unemployed means the number of insolvencies will continue to rise.

High levels of personal debt have driven consumer spending in recent years, benefiting the economy, but that will inevitably change.

A good part of the economy has been fuelled by the ability to borrow against increasing house values, but that will become harder to do and consumer spending power will be more restricted.

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The end of 16 years of growth

August 22nd, 2008

After months of slowing growth, the Office for National Statistics (ONS) has said that last month the UK economy remained unchanged, the first time the economy has not grown since 1992.

An earlier estimate put growth at a miserly 0.2% but this was revised downwards. Some analysts are now saying that the 0% figure is in fact optimistic and that we are already in recession.

The Eurozone economy is already contracting. Since this is the biggest trading partner of the
UK exports are expected to fall further in the next few months. Meanwhile, the services sector, the backbone of the UK economy, grew just 0.2%, while manufacturing output fell by 0.8%. Household spending dropped by 0.1%.

The figures are likely to raise expectations of a cut in interest rates to prevent a protracted slowdown. However, inflation, which hit 4.4% in July, could make it more difficult for the Bank to cut interest rates to spur the economy. Analysts said the zero growth reading could lead to lower borrowing costs by the end of this year.

There is a major symbolic aspect to the zero growth announcement. The government liked to highlight the unbroken run of growth going back to 1997, when it came to power, and generally ignored the five years before.

But the 16 year run is a record unmatched by any other leading economy. That run has now come to an end and few are predicting when it will pick up again.

Of course, these figures could yet be revised again, perhaps back upwards. But all the signs suggest that economic growth is on a downward path. The third quarter, which we are now in, and the fourth could well turn negative, signifying a technical recession.

Even if flat or slightly positive, this year’s growth will be the weakest since 1992.

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