EU rules change the game for UK borrowers

January 11th, 2011

EU regulations coming into force here in the UK at the beginning of February mean more borrowers will find themselves charged a higher rate of interest than advertised for personal loans.

At the moment at least 66% of successful applicants for loans should get the advertised rate following a promotion. However, under the EU rules this will fall to only 51%.

The change is due to the incorporation of the European Consumer Credit Directive into UK law, which has benefits for consumers as well as disadvantages. For example, borrowers should also now be given more details about credit agreements making it more difficult for borrowers to conceal unfair clauses.

The revised rules will state that an advert for any form of credit should make it clear what will be charged in interest. The new rules stipulate that the annual percentage rate (APR) that is quoted on an advert must reflect at least 51% of business expected to result from the advert.

Analysts have been quick to suggest ways that customers can ensure they are in the 51% that receive the advertised rates for loans. Primary among these is the vital importance of understanding your credit history before completing any application.

Similarly, demonstrating a high level of awareness of your financial situation and the effect upon it of any loan should ensure that you are accepted for a loan at a good rate, rather than declined or accepted but with a conditional higher rate applied.

Statistics show that under the current rules, for every 100 people who apply for a loan in the UK only 30 are accepted, and of those only 20 receive the rate advertised. From 1 February, this will fall to just 15 people.

The European rules are aimed at ensuring lenders are responsible and offer loans only to people who have a chance of paying them back. Lenders must tell borrowers, often verbally, exactly what will happen if they fail to make their regular repayments.

Lenders must also explain why people have been turned down for a loan if because of black marks found on their credit file.

Demand for loans and overdrafts have been subdued during the last year, according to figures from the Bank of England, as borrowers remain safe during economically uncertain times.

Separate new voluntary rules introduced at the start of the year have given credit card borrowers more leniency over repayments. Card providers will have to give 60 days’ notice of an interest rate increase. Customers will have the right to reject the increase, hand in their cards and pay off their debt at the old rate. They will also be able to pay off the most expensive debt on their card first.

On the face of it these new EU regulations make UK consumers worse off and limit access to cheap credit. However, as the past years have shown, this can be a good thing and the underlying aim of ensuring responsible borrowing and lending occurs is a good thing for the UK economy as a whole.

This entry was posted on Tuesday, January 11th, 2011 at 8:22 am and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

EU rules change the game for UK borrowers

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