Personal lending back with a bang with new loan options
Six long years of austerity put paid to our personal saving schemes, but borrowing options are emerging again
IN an ideal world we would save enough to buy what we need.
But when it comes to our finances most of us are a long way from being able to do that. Six long years of austerity have seen to that.
The fact that our banks are in recovery mode after the near-death experiences from too much bad debt, means that getting a loan can be difficult.
This is particularly the case for unsecured loans, such as those used to buying a car or carrying out home renovations.
But the good news is that more options are emerging as we slowly emerge from the financial fog that enveloped the country.
Save, then borrow
Permanent TSB introduced a new product last summer where customers of the bank can get reduced interest rates on loans if they secure the loan with matching deposits. This is the type of arrangement that has worked well for credit unions for years.
Under the Permanent TSB scheme customers can get a discount of 3pc on personal loans, provided the sum they borrow is less than or equal to the value of the amount they have on deposit with the bank, or less than or equal to the value of the bond/policy to be assigned to the bank.
Sums of between €13,000 and €75,000 can be borrowed. The annualised percentage rate (APR) for cash-secured loans starts at about 7.5pc. This compares favourably with the standard loan rate of 10.5pc.
Take a €20,000 loan over five years. The monthly savings from the lower interest rate work out at €25. Over the life of the loan, the saving is €1,500. The advantage of the new product is that it allows you to get cheaper finance while maintaining your rainy day fund.
Financial experts said your chances of being able to borrow will increase as the loan will have some security behind it.
However, it's also important to remember that the bank will place a lien, or assign a bond or policy, on your deposit account. So, if you fail to repay your loan, the bank will be able to use your deposits to recover their loan. In addition, you might find that if you need to access this fund, it might be difficult to do so.
According to a spokesman for the bank, no withdrawals are permitted under the terms of the loan.
Part of the terms and conditions of the cash-secured loan is that the lien applies for the duration of the loan, so that the customer can benefit from the reduced interest rates.
"The product has been designed to meet customers' needs which we appreciate evolve over time, so the bank would of course work with any customer who needed to access their funds at any point during the loan," a spokesperson for the bank said.
"This might include the release of surplus funds after a certain repayment period."
Permanent TSB also offers a "Save & 'Borrow" product. This allows you to borrow up to four times your savings, with a minimum loan of €1,500 rising to €24,000, with a term of between 12 and 60 months.
Lower lending rates
Expanding KBC Bank is cutting its personal loan rates for those who make repayments from their current account.
The bank is also introducing a new cash-back scheme on its credit card, as it attempts to get customers to move to it from AIB, Bank of Ireland and Ulster Bank.
Customers who take out a loan with KBC and pay it off through their current account with the bank will get a 2pc discount on the rate.
The bank's new loan rates will be among the lowest in the market, putting pressure on rivals to cut their rates. Personal loan rates here are high compared with other eurozone countries, Central Bank studies have found.
For a loan of €20,000 over five years KBC will charge 10pc for those who can avail of the 2pc discount. This is the same as the interest rate charged by AIB, but lower than the 12.8pc charged by Bank of Ireland, according to information on the National Consumer Agency's website.
Ulster Bank charges 10.03pc for a loan of this size, with Permanent TSB charging 10.5pc. The new KBC loan rates are fixed, but there is no charge for repaying the loan early if they amount repaid is less than €10,000.
The popularity of credit unions for car loans has waned, but they say they have €5bn available to loan out.
But the big advantage is that if you borrow to buy a car, you own it if it's financed this way, there are no document or completion fees and there are no balloon payments that need to be made.
Car loan rates range from 6pc to 9pc, depending on the credit union.
A spokeswoman for Irish League of Credit Unions says: "When you borrow from a credit union you own the car from the outset. There is no need to worry about exceeding mileage limits or excessive wear and tear."
Take time to study the deals you are offered and to make sure you can meet all the requirements.
Renovating your home
The Government's home renovation incentive scheme offers a tax credit of 13.5pc on qualifying renovations.
The work done must cost at least €5,000 and be not more than €30,000 (once VAT is included) to qualify. If you do not have the funds to pay for the work, you may want a loan. Most banks have dedicated funds for this purpose.
Permanent TSB says it has a €100m fund solely for home renovation loans. It is offering approval in principal in five minutes on its website. Loan rates vary from 10.5pc to 14.3pc, depending on the amount borrowed.
Generally, the higher the amount borrowed, the lower the interest rate. Bank of Ireland has established a €75m loan fund for renovation loans.
It is offering a low rate of 9.9pc on amounts of above €5,000 and below €30,000 on terms of between one and 10 years, in conjunction with the tax credit scheme.
Any amount borrowed outside these parameters will be charged interest at the standard rate.
Ulster Bank has special offers for homeowners looking to upgrade their properties. Its Green Loan offers an interest rate of 8.9pc for the purchase of energy efficient home improvements and the purchase of renewable energy heating systems.