Loans?

When shopping around for loans, lenders can offer a great deal of different types of loans that may suit you. However they may include all sorts of hidden clauses which, you may be unaware of, and will only become aware of once the charges start coming through.

The rules, which are part of the Consumer Credit Bill, will give consumers clearer information before they take out a loan, enabling them to see exactly what they are signing up for.

New rules concerning loans and lender have been written to protect you the borrower from such hidden clauses. These rules are part of the Consumer Credit Bill. They allow borrowers to know exactly what they are letting themselves in for.

The information will include the total amount of money they will have to repay, the rate of interest they will be charged and the cost of any default penalties or early repayment charges.

The information regarding these new rules comprise of the total amount of money the borrower will have to repay including interest charges, the interest rate at which the loan is borrowed and the cost of any default penalties or if the borrower wanted to pay back the loan earlier.

People will also have to sign a separate agreement if they want to take out payment protection insurance, so that they are clear they are taking out a separate product.

Borrowers will also be given the opportunity to sign separate contracts regarding payment protection policies/insurance, so that they are fully aware that they are taking out a separate agreement.

The consumer minister Gerry Sutcliffe said: "Hidden payments and lack of clarity are very unhelpful for people trying to manage their credit commitments, which is why we've brought in these changes.

He also added that: "The precontractual information will help people shop around and make informed choices between the different products available to them, and the new level of clarity on loan agreements will mean that no one is in the dark about what they are signing up for."

The government also introduced new rules giving people who want to repay their loan early a fairer deal, abolishing the so-called rule of 78. The rule was one way in which lenders calculated how much interest a borrower should have paid at any stage of the repayment period of a fixed-rate loan they had taken out. While not unusual on credit agreements, it remained a mystery to many consumers.

Renowned throughout lenders was the rule of 78. This rule meant that borrowers who wanted to payback their loans earlier than agreed would have to pay a substantial amount of money on top of their agreed loan amount. Lenders calculated how much interest a borrower should have paid at any stage of the repayment period of a fixed rate loan they had taken out. Although lenders were quite aware of this rules many borrowers were left unaware. The government have introduced new rules, which in affect have abolished rule of 78.

Lenders will still be able to recoup some of the administration costs involved in settling a debt early, but the government has introduced a new way of calculating how much this will be that is fairer to borrowers.

Although the government has introduced a new way of calculating the amount due to the lender should the borrower decide to payback early, the lender will still be able to recover some of the administration cost. Altogether it is a much fairer deal.