Interest Rates
Beware of excess interest on loans
Summary: Loans may seem like the easy way forward, but beware the harder times ahead and do not over commit your finances.
Debt is a familiar companion for many people, and with financial forecasters almost certain that another interest rates rise is just around the corner, it may well become the skeleton at many feasts.
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The Bank of England, that august body who take the decisions on interest rate changes, forecast a few months ago that there is a small risk of the era of low rates coming to an end; a small risk perhaps but a risk nevertheless.
Credence has been added to their forecast by their own action in applying the recent hike in rates - only ¼% perhaps but still a move in the wrong direction for borrowers. We still have the situation of lenders trying hard to interest the impecunious in new loans to tide them over until things improve, with money readily available for the buy now, pay later mindset. However, it must be accepted that a hardening of attitudes towards loans is at least a dark cloud on the horizon, and it is time now to make ready for the approaching bad weather, rather than wait until it hits us and finds us unready.
The perceived problem has arisen in a situation where debt has lost its stigma, driven by easy access to money at very low interest. Business has jumped on the bandwagon by convincing people that they need their products and can easily afford them by taking out loans, which are frequently advertised as 'interest free', with the actual period before charges apply being difficult to ascertain. Politicians have not been guilt free (have they ever?), and have trodden a fine line in avoiding blame for the Nation's ever increasing debts, especially in the case of university students, whilst trying to ensure that spending maintains its impetus and keeps 'growth' on the financial records.
Financial institutions from banks and building societies to investment companies and small 'High Street' lenders have also played a part with offers of low cost, easy payment loans and interest free credit card balance transfers. 'Buy now, pay later'. It is a message with a definite attraction, but whilst the basis of the developing problems is correct as cited above, it shows a definite tendency to shoot the messenger, whereas the problem is actually caused by the readers of the message.
We, that is the spending public, have taken the message to heart and as a result we have mortgaged tomorrow in favour of today. Careful calculations of what could be afforded have been cast aside and regarded as suspect, or maybe the calculations have not been done in the first place. We all know what we earn or are likely to earn, and we should have at least a general idea of how much we can spare for 'luxuries'. No matter how much we are importuned by lenders, no matter their telling us that we can afford it, in the end we are the ones who are responsible for the debts and will have to find the money.
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