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By Jeremy Gates, Press Association

Jeremy Gates looks at the world of personal finance

Although credit card companies are writing off bad debts at record levels – new Bank of England figures show £2.1 billion was lost this way between April and June, which works out at about £40 million a day – they still chase new business with offers on cards and personal loans.

However, this isn’t as contradictory as it might appear. Tim Moss, loans expert at finance website Moneysupermarket.com, says: “To keep a Triple A credit rating, lenders must hold bad debts at a certain level.

“Unless they continuously put on new customers for loans at the front end, their percentage of bad debts tends to rise: Customers in trouble remain on their books while those with finances under control pay their loans off.

“Without new borrowers coming on stream, bad debt levels among lenders are bound to rise.”

Many would-be borrowers are in a vicious circle: As bad debts rise, lenders bump up borrowing costs for new customers. Despite a rock bottom Bank base rate, the average personal loan rate is around 12.6%, the average overdraft rate tops 18%.

But to minimise risks, the majority of High Street lenders deal only with existing customers.

Nationwide BS claims its ‘market leading’ 7.7% personal loan for amounts between £7,500 and £14,999 for up to five years coincides with the September car-buying season.

However, it is only available to existing – or new – Nationwide FlexAccount customers, which is a limited slice of the adult population.

Credit card providers are using a different strategy: They devise products to ease the pain of being in the red.

Moneysupermarket.com says: “Consumers are benefiting from renewed competition in the credit card market as the length of interest-free promotional periods offered on balance transfer and purchase credit hits record highs.”

Andrew Hagger, at Moneynet.co.uk, agrees, and adds: “A 15 or 16 month interest free period on balance transfers is becoming commonplace, although good credit ratings are essential for a successful application.

“Card companies got their fingers badly burned in the credit crunch.”

He thinks MBNA’s new Platinum credit card, for example, “could buy crucial time for somebody determined to get their problems sorted in that time.”

The eye-catching feature of the new MBNA card is the promise of no handling fees on balance transfers or money transfers made within the first 90 days of the account being opened.

More importantly, a promotional rate of only 1.9% applies for 12 months on money transfers, while the standard rate of interest on card purchases is 16.9% (typical) APR.

Obviously, any money transfer will be limited by a customer’s personal circumstances; it could typically be £2,000 to £3,000. For the introductory first year, the rate on the money transfer is only 1.9%.

At the end of the promotional period, the rate on money transfer balances costs between 20.9% and 27.9%, depending on personal circumstances and credit history.

That easily tops many authorised overdrafts, including Nationwide BS (18.9%), Lloyds TSB (19.3%) and HSBC (19.9%), making the MBNA option essentially an interim option.

Will Curley, product executive for MBNA in the UK, says: “This product appeals to many customers, particularly those keen to pay debts over a short period with lower fees.”

Mr Hagger says: “While interest free deals allowing you to switch balances from one piece of plastic to another are almost 10 a penny, the option to use a balance transfer to clear non-card debts is a rare opportunity to save on expensive personal loan or overdraft interest.

“Unlike a balance transfer transaction, a money transfer paid into your current account gives flexibility and opportunities to cut interest charges elsewhere.

“A £2,500 personal loan could set you back £272.96 in interest in 12 months or an overdraft of the same size almost £500. Borrowing this sum from MBNA at 1.9% for 12 months costs only £47.50 interest.”

Most cards usually charge a standard 4% handling fee on a money transfer, Mr Hagger points out, which would cost a further £100 on a £2,500 advance.

“This is an excellent opportunity to get to grips with your overdraft and save money,” he says. “If you’re smart, you’ll clear your balance or at least made big inroads within the promotional period.

“If you don’t, you’re exactly the sort of profitable customer that credit card providers dream of getting.”

MBNA isn’t the only card keen to improve its terms. From September 1, repayments to the AA’s Reward Credit Card that don’t pay off the full balance will pay off balances charged at the highest interest rate first.

The typical charge for the AA Reward Credit Card is 18.9%, and this new plan means balances with lower interest rates, such as the current online 12-month introductory 0% on purchases, will be paid off last.

The AA Credit Card also offers a reward scheme targeted at motorists – with double points for motoring spending, including petrol, purchases at retailers like Halford and even a deposit on a new car – and members of the AA get twice the earning rate of non-members. Points spent on AA products enjoy a further reduction.

Mark Huggins, at AA Financial Services, says AA’s change in repayment terms will become standard across the industry in January 2011.

However, these attractive terms on cards are paid terms for others – usually those unable to switch debts to another provider.

Kevin Mountford at Moneysupermarket.com says: “Our analysis shows renewed appetite among card providers to offer great deals and consumers should take advantage.

“Always remember, there is a sting in the tail. While interest-free periods get longer, rates of interest charged once they end are also rising. The average annual percentage rate hit 17.32% in August, against 17.15% in January.”

With job losses rising, many cardholders could soon face punishing rates of interest on outstanding balances.

If you see cards as a good escape from trouble, David Black, at financial analyst Defaqto, says shrewd customers should keep balance transfers on one card costing 0% for specified period, while putting new purchases on another.

:: INFORMATION: MBNA Platinum Card (online at www.mbna.co.uk); AA Reward Credit Card (0800 171 2036 and www.theAA.com.).


:: There’s a fee of only £99 on ‘best buy’ repayment mortgages from HSBC online bank first direct, with a 65% LTV (loan to value) limit on the two-year tracker loan at 2.19% (base rate plus 1.69%).

Rival deals up to 65% LTV include Coventry BS (2.89%), while there is a 70% LTV limit from Santander (2.57%), Northern Rock (2.59%), Nationwide BS (2.68%), and Woolwich (2.79%).

For those with a sizeable savings, first direct’s range of offset mortgage deals includes a two-year fix at 3.69%, a three-year fix (4.39%) and various offset trackers (2.39% to 3.09%).

:: Before you do a ‘Sam Cam’ and have a baby on holiday, get adequate travel insurance cover – especially if you are abroad – warns leading insurer World First Travel.

Most airlines won’t let pregnant women fly beyond 36 weeks, while some require a ‘fit to fly’ letter from a midwife or doctor. Brittany Ferries will not allow women to travel after 32 weeks (28 on its high-speed service), while P&O Ferries doesn’t allow women on its Western Channel routes after 28 weeks, although its short sea (Dover to Calais) and Irish Sea crossings are still available up to 38 weeks.

With no restrictions on travel by road or rail, some women could find themselves in a similar situation to Mrs Cameron.

Martin Rothwell, World First managing partner, says: “Any pregnant woman on holiday should have suitable cover and consider a specialist policy – pregnancy travel insurance.

“At World First we provide insurance to cover the entire term of pregnancy so women can take holidays up until their baby is born, if carriers let them travel.

“Women should take out insurance and have a European Health Insurance Card (EHIC). Some people mistakenly think an EHIC covers all medical needs, but this is not the case and an EHIC won’t help you get home for treatment back in the UK. Only travel insurance can give true peace of mind.

“However, pregnant women should read an insurance policy carefully, as many have a get out clause if there is a problem in pregnancy. Most policies exclude any claim if travelling beyond 32 weeks pregnant, or 24 for multiple births from the date of delivery.

“But if an airline or shipping company permits travel, and there have been no complications in this or previous pregnancies, World First can provide full cover under medical and emergency expenses for both mother and newborn child.”

World First tips for travelling when pregnant include check that you can travel – both outward and return journeys; get the right travel insurance policy – and read the small print; do your research – find out how close health care and medical facilities are to your accommodation; be prepared – take essentials just in case, such as blankets, baby grows, bottles, nappies and wetwipes; and in the latter stages of pregnancy, take a hospital bag with everything the midwife suggested for having a baby back in the UK.

World First Travel Insurance offers annual and single trip policies for destinations throughout the world, and insures some people for travel up to the age of 100.

Enquiries: 0845 90 80 161 and www.world-first.co.uk

:: Savers despairing at poor returns on cash might like Santander’s new Loyalty Tracker Bonds, paying 3.25% and 3% gross AER respectively, and tracking changes in the Bank of England base rate until October 1 2011. Both accounts are available for savings from £10,000 to £100,000, with no withdrawals permitted during the term of the product.

Enquiries: 0800 234 6065 or via any Santander or Alliance & Leicester branches.

:: Although many managed income funds have been hit hard by BP’s decision to suspend dividend payments, Robin Geffen claims his £24.4 million Neptune Quarterly Income Fund, which holds 50 stocks, is benefiting from heavy reliance on the out-of-favour, high-yielding utilities sector.

Mr Geffen says: “Dividend yields will form an important component of total return this year. Every stock in an income portfolio should contribute to a sustainable stream of income, while continuing to protect and grow its capital.”

Investors prepared to select their own managed funds should use a discount broker like Killik & Co, Hargreaves Lansdown or Chelsea Financial to reduce initial charges and ongoing commissions.

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