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New loan rules

There’s been a lot of news lately about the Consumer Credit Bill and improving loan rules to make them fairer to consumers. Well news in this week is that the rules are changing and contain many improvements which consumers and consumer groups should welcome. Many of the changes aim to provide clarity for the consumer, so you know exactly what your getting into when you sign a loan agreement and what the responsibilities are for both the lender and the consumer.

Under the new rules, when you sign an agreement for a personal loan for example, the lender is obliged to detail clearly how much the loan is for, how much is due to be repaid, APR charges and the frequency and amount of repayments. This will enable consumers to see exactly how much their loan is going to cost, but in addition will enable them to ascertain if the repayments are realistic before taking the loan out.

Another step forward is that any payment protection insurance charges are to be detailed separately, so it’s clear that this is a separate financial product, also it will enable consumers to see how much this is likely to cost with the lender and if they chose, they can shop around for a cheaper quote from an independent insurer. Since PPI can often be quite expensive when attached to a personal loan this should be quite an improvement in customer service.

The improvement in service and details of cost before entering a loan agreement should improve consumer choice and knowledge about the contract they are entering into and what it’s likely to cost them. However it’s not just pre-loan service that will be affected by the new rules.

Along with the need to detail any penalties attached to the loan agreement is an improvement into early repayment charges, which should make it easier on consumers who wish to repay their loan early, as well as still allow the loan companies to recover administration costs associated with early loan repayment. The Government is introducing a new way of calculating these costs that it believes will be fairer on the consumer.

The new rules are certainly a step forward for consumer rights, while not appearing to include anything that will stifle competition between loan providers; which is also an important consideration for the consumer. The National Consumer Council seems pleased with the changes and believes they can improve consumer knowledge about debt and lenders responsibility towards problems of indebtedness.

4/5/05

 

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