Borrowing ñ Where big is better

Things have lurched from bad to horrific in the US as two giant mortgage lenders Fannie Mae and Freddie Mac have revealed the dire straits they’re in.

With Freddie losing around £2.3 billion and Fannie trumping that with a loss of £3.6 billion, the banks, responsible for half of the USA’s 12 trillion dollar mortgage market, are in need of some heavy-duty assistance.

Fortunately for them, it seems the US Federal Reserve is following the Bank of England’s lead, offering the lenders vast funds at a much reduced rate.

Sadly, similar bail-outs aren’t so readily available for the struggling consumer, with reasonably priced loans increasingly hard to come by. Anyone in the market for affordable finance certainly needs their wits about them, and would do well to bear some key points in mind.

More for less

It may sound idiotic to suggest borrowing more when rates are going up but in general loan rates are considerably lower the more you borrow. Obviously you should only look to borrow what you absolutely need and no more, but it makes sense to ensure as much as possible of your borrowing is wrapped up in one loan rather than several small ones.

A £1k loan from Intelligent Finance will come with an APR of around 18%, but that drops by nearly 10% when the loan you take is over £7k.

When is a loan not a loan?

Not all borrowing need be as old fashioned as going cap in hand to the bank manager. Credit cards are increasingly offering extended 0% deals on both purchases and balance transfers which when used effectively can offer a cheaper means of finance.

Balance transfer deals tend to last considerably longer than those on new purchases but there’s little to stop you making the purchases with one card and then transferring the balance to another to maintain the 0% rate.

The Virgin Credit Card offers 0% on balance transfers for 15 months, but if you’re quick you could make use of the 0% on new purchases offered on the Platinum Card from Capital One until October 2009.

Keep your eye on the prize

With the loans market having suffered in recent months, lenders are now starting to look for some innovative ways to attract business. In the case of Nationwide that includes offering entry into a prize draw for a year’s supply of petrol to new loan customers.

Tempting as that may be, with petrol prices soaring, you’ll need to bear in mind that a) the chances of winning are very slight indeed and b) you could almost certainly find a better rate elsewhere. Nationwide’s 8.9% typical APR isn’t bad but certainly isn’t world beating.

Remember that there are plenty of providers and getting online to compare the market is always a good option.

Click here to compare loans.

Leave a Reply

Your email address will not be published. Required fields are marked *