Saturday, September 19, 2009

“Cost of loans up, and this time it's personal (The Scotsman: Business)” plus 3 more

“Cost of loans up, and this time it's personal (The Scotsman: Business)” plus 3 more

Cost of loans up, and this time it's personal (The Scotsman: Business)

Posted: 19 Sep 2009 04:20 PM PDT

According to research by price comparison site uSwitch.com, three unsecured personal loan providers have hiked rates by up to 1.2 per cent for new customers since the start of September. Marks & Spencer Money has increased selected rates by 1.2 per cent, Egg has upped the rate on loans between £3,000 and £20,000 by 1 per cent, and Alliance & Leicester has hiked rates by between 0.1 and 0.8 per cent, depending on the loan amount.

Although such increases might seem small, a loan rate jumping from 8.7 per cent to 9.9 per cent would cost a customer borrowing a £10,000 loan an extra £322 in interest over five years.

There are also fewer loans on the market than at this time last year. There are currently 36 loans available to consumers, compared with 57 before – a drop of 37 per cent. At the same time, the average loan rate has increased from 9.04 per cent to 9.08 per cent in the past year.

Louise Bond, personal finance expert at uSwitch.com, says: "Last year 1.3 million consumers used an unsecured personal loan for debt consolidation purposes. However, with the number of personal loans available dropping by 37 per cent this year and rejection running high, it would be highly unlikely that a similar number of consumers would be able to consolidate their debts this year."

If you're looking for a loan, bear in mind that providers are offering the best deals to their existing customers. The average interest rate in uSwitch's best buy table for existing customers is currently 7.94 per cent, with Nationwide topping the table with its Existing Customer Personal Loan Plan at 7.7 per cent. However, new customers can expect to be hit with an average interest rate for a best buy loan of 8.08 per cent, 0.14 per cent higher.

Critics also say that rates are at unfair levels compared to the Bank of England base rate which is at an all-time low of 0.5% and has been since March.

According to moneysupermarket.com, borrowers looking for a personal loan can now expect to pay around 10.32 per cent APR. So they are paying a premium of nearly 10 per cent for their loan compared with a year ago, when the gap between the average loan and base rate was a more manageable 3.4%.

Tim Moss, head of loans and debt at moneysupermarket.com, says: "Despite the Bank of England slashing the base rate to 0.5 per cent in March, loan rates have continued to rise, leaving consumers paying through the nose for their personal loans. Borrowers looking for a smaller loan of around £5,000 will be hit harder than those looking to borrow more.

"We have seen a recent glimmer of hope as loan rates crept down slightly in August. Competition seems to be returning to the loan market, which is great news for consumers; however lenders will need to continue reducing rates if they want to draw customers back, particularly those who want to reconsolidate their debt."

Banks and building societies are more cautious about who they will lend to than in pre-credit crunch days, which has made it much harder for consumers to get loans. Having a good credit history is vital if you want to be accepted for any of the loans listed in the best buy tables at the typical rate.

When assessing your loan application lenders will have a look at the information held about you by a credit reference agency. There are three credit reference agencies in the UK – Experian, Equifax and MyCallCredit – and they collect data from banks, lenders and other institutions you have a financial relationship with, such as phone and utility companies. All three credit reference agencies offer monitoring services whereby the consumer pays a monthly or annual fee and are told about any changes to their credit file. However, a cheaper way to see your report is via a statutory right detailed in the Consumer Credit Act 1974, which means you can see a copy of your report for just £2.

If you find an error in your report, write to the credit agency to ask for it to be corrected. If you don't get even minor mistakes changed, they could all count against you when a company uses your credit report to make a lending decision and in today's economic climate this could mean the difference between getting a loan and not getting one.

Contrary to popular belief there is no such thing as a "credit blacklisted" address. Lenders can only carry out credit checks on individuals, not on an address. So the previous occupants at your flat or house shouldn't affect your credit score. Unless you have a joint account, loan or mortgage with someone else your credit score is not affected by anyone in your family or your partner.

If you split up with a partner you have had joint finances with, once the accounts are separated, always write to the credit reference agencies and ask for a "notice of disassociation" to be put on your account. This will stop their credit history affecting yours in the future.

The way you manage credit will affect how keen lenders are to offer you a loan.

If you have a credit card and make the required payments on time, lenders might view you more favourably than someone who has never borrowed any money at all. However if you have missed payments in the past or have been pursued by debt collectors or the courts for money, this will count against you.




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Personal loans, with a twist (Inside Bay Area)

Posted: 19 Sep 2009 04:03 PM PDT

As banks continue to tighten the grip on borrowers, canceling home equity loans and cutting borrowing limits on credit cards, Americans are increasingly turning to a timeless source of credit: one another. Person-to-person lending, facilitated by Web-based companies, is quickly coming of age.

"The credit crisis has put a huge crimp in the ability of the average consumer and the average small business to access credit from traditional sources," said Ed Kountz, a senior analyst at Forrester Research in Atlanta. "In a time of tightening credit, person-to-person lending has turned into an attractive alternative."

Borrowing from relatives is as old as the hills, but today's person-to-person lending market makes that loan more formal and accessible.

The market is dominated by three major players — Virgin Money, Prosper and Lending Club — although there are more than a dozen others.

These companies facilitate loans between friends and family by providing loan documents and automatic debits from the borrower's account. They also serve as matchmakers between strangers wanting to borrow and willing to lend.

The way it works varies from site to site, said Curtis Arnold, founder of CardRatings.com and coauthor of "The Complete Idiot's Guide to Person-to-Person Lending." That's largely because the market for this type of transaction — also called peer-to-peer lending — has

gotten big enough for the companies to specialize.

Virgin Money concentrates on formalizing loans between people who already know each other. If you want to hit up your parents for a mortgage loan, for example, you can get them on a conference call with a Virgin Money representative and talk through both the interest rates and terms.

If you strike a deal, Virgin Money will then write up the paperwork and collect the payments. The cost for the service varies between $99 and more than $2,000, based on the complexity of the loan and how much you have the company do, said Tim Burke, social lending sales manager at Virgin. If you choose to have it process payments, Virgin Money also collects a processing fee each time a payment is made.

Virgin Money doesn't dictate the terms — although it will provide warnings if the loan's interest rate is so low that it's likely to trigger tax problems or so high that you're likely to run afoul of state usury laws. (If you charge considerably less interest than market rate, the IRS considers the lost interest to be a gift to the loan recipient.) The rate and repayment schedule are set by agreement between the borrower and lender. No credit reports are necessary.

If you don't have well-heeled relatives or simply don't want to ask a relative for a loan, you'd be better off going to Lending Club or Prosper, Arnold said. These sites aim to bring strangers together to finance small businesses, refinance credit card loans and provide loans to students.

Because the borrowers and lenders don't know one another, there are safeguards built in on both sides.

To protect borrowers, lenders are not given access to the borrowers' personally identifiable information. That reduces the chance that an anxious lender will directly contact a delinquent borrower for payment. (Borrowers who go delinquent do need to worry about collection agents, though.) Once lenders agree to fund a certain loan, they're not allowed to back out, so borrowers also don't have to be concerned about having promised credit ripped away.

To protect lenders, the sites pull credit reports on each potential borrower and turn away borrowers whose credit scores don't meet minimum standards. Both Lending Club and Prosper have grading systems to handicap the likelihood that a borrower will default. Lenders use these risk profiles to determine whether to fund a loan and how much interest should be charged. You would, for example, expect a higher return on a C-rated loan than on one that has an A.

Prosper, which revamped its site after a recent registration with federal Securities regulators, actually demands that lenders get returns that are commensurate with the risks they're taking, a company spokeswoman said. To determine interest rates, the company uses the going rate for a low-risk investment such as a certificate of deposit and adds points based on the likelihood that the borrower will default. So if the going CD rate is 2.5 percent and the loan you've bid on is calculated to have a 6 percent potential default rate, the site will not allow the interest rate on the loan to fall below 8.5 percent.

To figure out the risk of default, Prosper uses a formula based on the borrower's history and its own experiences.

"We have a system that we think ensures that both sides get a fair deal," said Chris Larsen, Prosper's chief executive and co-founder.

For those who have money to lend, peer-to-peer borrowing represents an investment — albeit a risky one.

"I could invest my money and get 2 percent in a money market account or I can get 7 percent to 9 percent lending it out," said Arnold, who has invested his own money in person-to-person lending. "And if you're able to lower somebody's credit card rate to 9 percent, that's great for them too."

But making loans is risky business, said Bobbie Britting, research director of consumer lending at TowerGroup.

"Any borrower could have their circumstances change and find that even if they wanted to make their payments, they're not able to," she said. "Most of these are unsecured loans (not backed by collateral such as a house or car) and those are the riskiest."

Since its inception in 2006, Prosper has registered a 19 percent default rate, Larsen acknowledged. The company has significantly tightened its lending criteria in the last few months and no longer accepts subprime loans, so Larsen expects that rate to improve. However, even Virgin Money reports that about 5 percent of its borrowers don't pay on their loans either.

Britting says that defaults shouldn't dissuade lenders from jumping in. But she urges investors to diversify — never lending more than they can lose to one borrower and spreading their loans around.

"You should ask yourself if you can afford to lose 20 percent of your investment," she said. "Lending is inherently risky. You have to be prepared for that."

Contact Kathy Kristof at kathykristof24@gmail.com.



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Well Educated and Flat Broke: Student Loans Take a Toll (Washington Post)

Posted: 19 Sep 2009 03:49 PM PDT

The percentage of those loans in default grew to 6.7, up from 5.2 percent in 2006. The figures represent borrowers whose first loan repayments came due from Oct. 1, 2006, to Sept. 30, 2007, and who defaulted before Sept. 30, 2008, according to the U.S. Department of Education.

In other words, the department reported, nearly a quarter-million student-loan borrowers went into default during that year.

This latest statistic didn't get a lot of notice in most major newspapers when it was recently announced. But this disturbing trend is worth more than a paragraph or two. While the administration continues to try to find ways to fix the financial industry and health care, there has to be more focus on curtailing what has become for too many the crushing cost of getting a higher education. Without that education, many people won't be able to get well-paying jobs. And without better jobs, they risk eventually becoming part of this nation's underemployed or unemployed.

Student-loan defaults have been relatively low since hitting their peak of 22.4 percent in 1990. Then, nearly one in four borrowers defaulted, according to the Department of Education.

The rate dropped to a record low of 4.5 percent in 2003.

So at 6.7 percent, things aren't as bad as they once were, yet they're not as good as they should be. But the default rate tells just part of the story. With wages depressed and housing and health-care costs high, even those who can keep up with their monthly student-loan payments are stretching their education loans out for decades.

How bad is it?

Go to StudentLoanJustice.org and read the stories of "victims" living under crushing student loans. Also go to http:/ / www.defaultmovie.com and watch the poignant trailer from "Default: The Student Loan Documentary." The feature-length film chronicles the stories of borrowers who, years after leaving school, are trying to repay loan balances that have ballooned to two or three times the amount they borrowed.

For so many, the heavy borrowing is unsustainable, and there are a number of efforts underway to call attention to the student-loan sinkhole.

The Rainbow/PUSH Coalition, headed by the Rev. Jesse Jackson, has launched a "Reduce the Rate" campaign (http:/ / www.reducetherate.org), urging the Obama administration to allow people to borrow at extremely low rates.

"Students should get the same deal banks are getting," Jackson said in an interview. "If banks can borrow at 1 percent, then so should students."



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Federal regulations on employee loans (Pioneer Press)

Posted: 19 Sep 2009 07:36 AM PDT

From Title 26 Code of Federal Regulations 1.7872-5T(c)(1)

§ 1.7872-5T Exempted loans (temporary)"...

(c) Special rules -- (1) Employee-relocation loans -- .(i) Mortgage loans. In the case of a compensation-related loan to an employee, where such loan is secured by a mortgage on the new principal residence (within the meaning of section 217 and the regulations thereunder) of the employee, acquired in connection with the transfer of that employee to a new principal place of work (which meets the requirements in section 217(c) and the regulations thereunder), the loan will be exempt from section 7872 if the following conditions are satisfied:

(A) The loan is a demand loan or is a term loan the benefits of the interest arrangements of which are not transferable by the employee and are conditioned on the future performance of substantial services by the employee;

(B) The employee certifies to the employer that the employee reasonably expects to be entitled to and will itemize deductions for each year the loan is outstanding; and

(C) The loan agreement requires that the loan proceeds be used only to purchase the new principal residence of the employee.

================

The definition of the new principal residence for moving expense purposes is under 26 CFR 1.217-2(a)(8)

§ 1.217-2 Deduction for moving expenses paid or incurred in taxable years beginning after December 31, 1969.

"...(8)

Residence. The term "former residence" refers to the taxpayer's principal residence before his departure for his new principal place of work. The term "new residence" refers to the taxpayer's principal residence within the general location of his new principal place of work. Thus, neither term includes other residences owned or maintained by the taxpayer or members of his family or seasonal residences such as a summer beach cottage. Whether or not property is used by the taxpayer as his principal residence depends upon all the facts and circumstances in each case. Property used by the taxpayer as his principal residence may include a houseboat, a housetrailer, or similar dwelling. The term "new place of residence" generally includes the area within which the taxpayer might reasonably be expected to commute to his new principal place of work.

Source: IRS regulations

— Mercury News







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Posted by Rakhma at 5:33 PM

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