As if the UK debt market isn’t at busting point already, there are several Loan companies vying for new customers and the year has just begun. January is the busiest month of the year for loan applications so it is basically a feeding frenzy for the loan companies. What is the UK debt situation going to look like at the end of the year?

Personal loan rates are dropping all the time and at the time of this article being written one of the more competitive rates being promoted in the market is 5.5%. This applies to loans from as little as £1,000 to a max of £25,000. On the face of it that looks like a good deal but always remember that most lenders will reserve their best rates for those that are borrowing over £7,000.

There is a base rate drop on the cards this year and all the loan companies are factoring this into their rates on offer. The rates may seem attractive but if the interest rates drop then you may be a % point worse off if you have locked yourself into one of these low rate loans now.

There are a lot of people that are still paying off their debt from last years Christmas season. The attractive rates on offer at the moment are just going to perpetuate the borrowing cycle. Is this not what the banks want? If you take out a loan you are going to get the hard sell in order to take out payment protection. This is entirely up to the borrower but in many cases it has been shown that the cost of the protection is extremely expensive and should you need to be covered you will find that there are several conditions that apply so beware. Banks make an absolute fortune from this as only a small % of people actually end up having to claim.

Think of it this way: You get a loan for 5.5%, you take out payment protection and that extra charge on your card every month in real terms actually pushes your interest rate up by about 0.5%. This means you are actually paying 6%. There has been a lot of press lately about the mis selling of PPC so again be cautious.

I won’t mention all the companies that are fighting for your business but you can be certain that when you open that magazine you have just bought about 2 lbs in weight of loan brochures will fall from the covers.

The general rule of thumb in the industry is that two thirds of all applicants should qualify for the APR advertised but unfortunately only those with excellent credit ratings will get this rate. Others will be hooked into slightly higher rates so what you see advertised is not necessarily what you get.

Grant Marwick is a freelance writer and owner of http://www.1st-in-loans.co.uk where you will find advice and more articles on personal loans.

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