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Getting Credit in a Downturn

By: Edward Mellett - Updated: 22 Jul 2010 | comments*Discuss
 
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Most money lenders, (specifically mortgage lenders – banks – and credit card companies) have started to re-assess the value of money in light of the credit crunch and subsequent recession, and make moves to rapidly increase the price of cash. This means that the interest rates on your credit card debt will be going up, the rate on new cards you might want to get is going up and the rate on loans is – you might have guessed – also going up. Things are going to get tougher if you want cheap credit, so you will need to get competitive if you want to borrow money at the best rate.

Rather than using your credit cards to pay for purchases, it is now much more sensible now to get a low cost loan and use this to make larger necessary purchases ( for example for a new car, furniture, or to pay necessary bills). However, getting loans is a relatively long process compared to paying for things with easy credit card credit. Considering the current crisis though, taking longer and spending time considering purchases, might be a wise thing to do!

The most important thing to remember about getting credit in a downturn is that it will still possible to get credit – it will always be possible to get some kind of credit - but it is very likely (effectively essential) that you have an immaculate credit rating to do so. If you do, then there are still some good lender deals to be found, if you take the time to do your research and investigate the market. One thing is certain, getting cheap credit is not as easy as it used to be!

Getting Personal Loans

The bank or building society you currently bank with (or hold a mortgage with) could well be a good starting point for getting credit. However, although it could be the most obvious place to start if you're looking to borrow money, it might not necessarily offer the best loan on the market.Banks that you have been a customer of for many years however, may be able to offer you a quicker decision than many other loan companies, because of the amount of information they have about your financial history.

You Must Shop Around to get a Good Deal

Shopping around to get credit is essential. The difference between the best and worst interest rates can be almost double, so choosing the wrong loan provider can cost you dearly!

How is the Loan Priced?

While interest rates should be relatively easy to compare and evaluate if you are getting a good deal, there is the added complication of typical and personal priced loans.In fact, only 66% of accepted applicants will receive the advertised rates, while the remaining 33% of applicants could be offered a higher or lower rate depending on their individual credit rating.

What Type of Loan is it?

It is always important to consider what type of loan you need - secured or unsecured.

Unsecured loans are based on your personal credit score and income. The maximum borrowing amount is usually about £25,000 and they can be organised for anything up to ten years.

Secured loans are usually cheaper but they are only available to home owners - the loan is secured against the value of a property. If you default on your repayment you could easily lose your home - not good.

So Remember…

A personal loan is usually a long term fixed financial commitment, so it's important to consider your need for credit carefully, and not to jump for early pound signs when you see them.

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