Don’t bail out friends and family with loans

A debt advice agency in the UK has warned that lending money to friends and family could have an adverse effect on both the lender and the borrower.

Officials from the Debt Advice Bureau claim that it is better to offer family and friends advice and support when they run into financial problems rather than throwing money at them by way of loans. In many cases these loans are not fully repaid and can put a strain on the relationship, and often this type of action results in people becoming reliant on loans from family and friends to bail them out if they get into financial difficulties.

Officials from the Debt Advice Bureau state that consumers should help family and friends to overcome debt and finance related problems rather than encouraging them to rely on others to help them out financially, as this can simply lead to a cycle of debt, and could even lead to the borrower getting themselves into debt in order to help out the family member of friend, which can make matters even worse.

One official from the bureau said that by lending money to friends and family consumers could be making the problem worse for all concerned.

He stated: “You don’t want to be laying the groundwork that every time they have a slight cashflow problem, you come to the rescue.”

Official figures show that in many cases the money that is lent to friends and family members is not received back in full, and in some cases is not repaid at all.

According to the results of a recent survey, only around 58% of 70% of consumers that had loaned money to family member had been fully repaid. Of the 59% that had lent money to a friend only 27% had been fully repaid. 

Tom Smith
6th October 2007

Tags: friends, back, pay, debt, cost, family, Loans, owe

Students need to be more careful over getting into debt

According to a recent report the level of student debt in the UK is on the up, with many students graduating from university having racked up huge levels of debt along the way.

One credit reference agency is now urging students to think very carefully before getting themselves into debt, and to ensure that when they do take out credit cards and loans that they use the money sensibly and for necessities, and they make the repayments sensibly and on time.

Melanie Mitchley, an industry expert from the firm Call Credit has stated that students need to be mindful of the effects of getting into debt, and need to be careful about building up debt. She stated that new students need to manage their finance more sensibly, and need to keep on eye on their finances.

According to Barclay’s figures former students have been graduating with debts that are in excess of £13,000 on average. Another survey into student debt indicates that students could soon be graduating with average debts of around £20,000.

Ms Mitchley stated: “We are urging all students whether freshers or in their final year to be aware of the potential pitfalls if they don’t take control of their financial affairs. Our experience has shown that taking on credit needn’t be a problem if you manage your finances well and ensure you keep up your repayment.”

Another survey carried out by the Halifax showed that credit cards, overdrafts, and loan were amongst the most common forms of debts for students, with 43% of students surveyed having borrowed on credit cards, 73% using an overdraft facility, and 83% having taken out a loan.

One Halifax spokesperson stated: “These are significant sums for anyone, let alone someone who is not yet working full-time.”

Tom Smith
5th September 2007

Tags: repayments, Loans, student, cards, debt

Extended Mortgage Terms Means Huge Amounts of Interest For Consumers

The rising property prices in the UK over the years have resulted in many people losing out on the chance to get their foot on the property ladder.

And because of this, over recent years, many banks and building societies have started to offer longer mortgage repayment terms over and above the traditional twenty-five year mortgage, as well as offering higher salary multiples, in a bid to attract consumers that are desperate to get onto the property ladder. Over recent years many lenders have been offering thirty and thirty-five year mortgage repayment terms.

However, experts are now concerned because some lenders have started offering even longer repayment terms, with up to fifty-seven years now being offered as a mortgage repayment term option with some mortgage providers. These mortgages have been labelled as ‘madness’ by experts, who state that although the monthly repayments will be lower for consumers because of the extended term, rising interest rates and the amount of time for which the borrower will be in debt could prove a real problem.

One director of a mortgage broker stated: “Life-long mortgages are a false economy. You end up paying literally tens of thousands of pounds in extra interest. It really is not a sensible thing to do. The idea of paying off a mortgage for 40, 50 or even 57 years is madness.”

With average house prices in the UK rising to well over two hundred thousand pounds, and with interest rates rising to five percent, a number of lenders have made changes to the mortgages that they offer in terms of the length of the mortgages available and the amount that can be borrowed. This is to attract more custom from those that would otherwise be unable to purchase a property.

Tags: Loans, increase, terms, length, extend, years, charges