News Release
Embargo'd: 00.01
Carol Vorderman Please Stop Doing Secured Loan Adverts!
Over half a million people e-mailed today to sign the petition
The
The UK public now collectively owe £1,100,000,000,000 (one point one trillion pounds) and the founder of the website; TV and radio presenter Martin Lewis, believes one of the worst elements is that secured loans have grown five fold in five years (source: Datamonitor).
“Sold as a ‘cure all' where people place all their debts together, secured loans are often actually potentially expensive debts, which trap people in for long periods, and if you can't repay, they can take your home.”
The ad-free, free to use, Consumer Revenge website, will today give the loyal 500,000 plus recipients of its free weekly e-mail the opportunity to sign the petition and spread the word; the start of a drive to persuade the high-profile celebrity to stop doing such adverts.
Consumer champion Lewis, 33, says: “As a talented TV presenter, famed for her mathematical nous, Carol Vorderman is undoubtedly trusted by the public.”
“For nine years she's adv
The petition can be found at www.moneysavingexpert.com/carol
He believes many customers don't truly understand what ‘secured' means. “While secured sounds good, it's not the customer who gets the security, but the lender. Unlike normal bank loans, the debt is ‘secured' on your home, and if you can't pay they can take it!”
The Secured Loan Pitch
Martin Lewis explains, “many secured loan adverts focus on persuading people to convert credit cards and loans, which are unsecured, into secured debts, risking people's homes. Their pitch to the public is straightforward; people can take all their debts and put them into one simple loan account which has a lower interest rate, giving it the appearance of a cheaper loan.
“Yet with secured loans you are encouraged to borrow over a much longer period, often 25 years. A £10,000 loan at 15 per cent over five years costs £4,000 and that is an unusually high rate of interest. Yet a secured loan of 12.9 per cent, which is a perfectly normal rate, over a 25-year period, costs an enormous £22,000.”
“There are so many pitfalls with secured loans. The interest rates are usually variable, not fixed, as with normal bank loans, and those with the worst credit records are charged higher rates than those advertised and there are severe early repayment penalties.”
“Also these companies often insist on Payment Protection Insurance, which is not included in the cost of the interest. It is not unusual to pay a £7,000 premium on a £10,000 loan over 25 years.”
(A full breakdown of secured loan problems is in Notes to Editors 8)
What people should do rather than getting a secured loan
While for a small niche group of people in very specific circumstances secured loans may be the right option, in most cases, the whole thing is unnecessary, and could be solved in a variety of other ways, Lewis argues: “To take one easy example, in some circumstances, the debt could simply be moved onto a mortgage, at a much lower rate and possibly with the facility to pay it off more quickly.”
“More importantly anyone who is in debt-crisis should go to seek help from one of the free debt counselling charity services like the Consumer Credit Counselling Service, National Debtline or the Citizens Advice Bureau. They're genuinely on the consumers' side”.
(A full checklist of things to try before getting a secured loan is in Note to Editors 9)
How the idea for the appeal originated
This is the second step of a campaign to warn people of the dangers of secured loans, the first was a petition to ask children's television channels to stop showing secured loan adverts on children's TV.
Yet the first germ of the idea behind this specific appeal simply came when Money Saving Expert, Martin Lewis saw one of these ads on the TV,
“It was about January 2005. I was sitting at home and saw Carol Vorderman in a secured debt advert telling viewers ‘ you can stop juggling all your annoying credit and have one lighter monthly repayment instead, or you could just splash out a bit'.
“To off
“We have a nation that is split between a large numb
“As secured lend
Quotes from supporting organisations
Malcolm Hurlston, Chairman of the
Keith Tondeur, national director of the money education charity Credit Action, says the charity is supporting this appeal because “by using a p
Contacts Details For MoneySavingExp
David Brooks, Gemma Dickenson or Elisa Parish
Phil Hall Associates on 0207 297 2328/ 07870 603552
Read an interview with a debt counsellor and case studies Notes to Editors
1. More details and links:
To sign the petition log on to www.moneysavingexpert.com/carol
To read more about the appeal visit www.moneysavingexpert.com/carolappeal
2. About MoneySavingExpert.com
MoneySavingExpert.com is a free to use consumer finance help website. The aim of the site is simple: showing people how to save money on anything and everything and fight back against big companies' profiteering. Set up three years ago, for just £100, its no advertising, free to use, ethical stance quickly made it the UK's biggest independent money website according to internet ranking site Alexa.com.
It currently has over 550,000 people opted in to receive its weekly money tips e-mail. There are nearly 1,000,000 unique users of the site, it is visited over 2,000,000 times a month and receives approximately 23 million hits per day.
3. About Martin Lewis.
Martin Lewis is an ultra specialised journalist, he is the presenter of ITV1's Make Me Rich (currently being repeated on ITV2), author of the bestselling The Money Diet and regular Money Saving Expert on Radio 2's Jeremy Vine Show, BBC1 Watchdog and ITV1 Tonight with Trevor MacDonald, amongst a host of other shows. Martin created and owns MoneySavingExpert.com (picture available on request).
4. About the Consumer Credit Counselling Service.
The CCCS is the
CCCS is funded by lenders making a donation sharing the benefit they receive from the money repaid to them through DMPs. This allows CCCS to retain its independence and ensure that its advice is always in the best interest of the client. CCCS aims to separate the “can't pays” from the “won't pays”.
Spokesperson details: Frances Walker 020 7636 5214 (office) 020 8995 5640 (home) 07909 563806 (mobile) email fwalker@hurlstons.com
5. About Credit Action.
Credit Action is a national money education charity (registered Charity No. 1106941) established in 1994. It aims to teach people to manage money better and prevent over-indebtedness and uses a wide range of resources to this end. Credit Action also campaigns to encourage greater understanding of the need for more financial education and literacy.
6. Carol Vorderman and Firstplus.
This appeal is about the normalization of secured loans in general, rather than any one specific company. The specific secured loan advert Carol Vorderman does is for Firstplus loans, a subsidiary of Barclays.
It rejects 4 in every 5 applicants, due to its policy of accepting higher credit scorers. One concern is that some of these borrowers, having been drawn to the secured loan path, may then apply with a less reputable secured lender.
The following is a transcript of one of Carol Vord
“If you're worried about money, it can sometimes feel as if life's passing you by. Maybe the repayments on credit cards and loans are leaving you with less and less money each month, but it doesn't need to be that way. You could free up more money each month by consolidating your existing debts into one sensible secured loan from Firstplus. With Firstplus homeown
FIRST RECORDED DATE:
It targets people who are worried about money already. While the monthly repayment might be less, for those who don't read the small print, it doesn't explain that you will be in debt for longer, and pay far more in interest overall - if you don't lose your house, which is now given as security, in the process.
7. Carol Vorderman and Firstplus “Splash out a bit”
The following is a transcript of the Carol Vorderman advert mentioned in the main release (the one which inspired the appeal), which contains the phrase “splash out a bit”.
“Looking for a loan with flexibility? By calling Firstplus on 0800 479 3000 you could borrow anything from £5,000 to £75,000 at really competitive rates, and there's a wide range of repayment choices too. Even if you've no equity, you can stop juggling all your annoying credit and have one lighter monthly repayment instead, or you could just splash out a bit. Call Firstplus now on 0800 479 3000, their friendly staff could help you in minutes. Firstplus, because life is for living.”
RECORDED DATE JANUARY 2005, Source: Thomson Intermedia plc
8. Full Breakdown of the problems with secured loans
The following is Martin's Lewis's full assessment of the problem with secured loans generally
- It's the lender that gets the ‘security', not you.
The reason secured loans are for homeowners is that if you borrow with one, the lender gets the security that it can take your house if you can't repay. Used in debt ads, the term can sound comforting, yet the comfort isn't for the borrower. Many don't realise that unsecured is better than secured; and that when you turn credit card debts into secured debts, you have suddenly decided to risk your home on this borrowing.
- The rates are often more expensive than unsecured loans.
Strangely enough, on top of the fact you're not getting security with a secured loan, the rates are often higher than unsecured loans too. Most good competitive unsecured loans, for those with decent credit scores, are at a much cheaper rate than secured loans.
- The rates are not what they seem.
While often a typical rate is advertised, many people, especially those with worse credit histories, pay much higher rates, sometimes more expensive than the debts they are converting. This is a ludicrous scenario where people are paying more to have worse debts.
- Rates are variable not fixed.
Most people are used to and understand normal bank loans, where the rate of the loan is fixed at the outset, thus you know exactly what you'll be paying over the life of the loan. With secured loans the rates are usually variable.
In other words, the lender can change it and, as loans are invariably longer, it is almost impossible to have any certainty as to what you'll be paying overall. You are tying yourself into a potentially open ended cost.
- Borrowing is extended over a longer period.
With secured loans you're encouraged to borrow over much longer periods, sometimes 25 years. This is massively longer than the normal unsecured loan that you're replacing. This is how they can advertise ‘one low easy payment'. It's lower because you're spreading the cost, not because interest rates are lower.
Yet the total interest you pay is a function of both the rate and the length of borrowing. Let's make this plain. Even a normal loan at 15% interest, twice as high as most, for £10,000 over five years only costs approximately £4,000 in interest. Yet a secured loan of 12.9% (perfectly normal rate) over 25 years roughly costs an enormous £22,000.
- Payment Protection Insurance.
Secured lenders make large profits from selling insurance on top of their loans. The cost of this insurance is not included in the interest yet it adds and enormous whack to the cost. For example £7,000 on a £10,000 loan over 25 years is normal.
Worse still, sometimes when people have tried to claim because they can't repay they find it isn't valid for the life of the loan. It's an extremely expensive form of protection that often doesn't even do what it says on the tin.
- Larger borrowing.
Secured loan companies allow a much larger range of borrowing than normal loans, meaning the debts are much bigger. Worse still, the advertising of these loans may exhort those with debt problems to borrow even more.
- Early repayment penalties.
Typically secured debt companies locked people in over longer terms with harsh repayment penalties if they tried to pay the loan off earlier. Recent changes in legislation mean now the max penalty is two month's worth of interest.
However people on the old loans are still subject to such penalties. Also the rules do not apply to borrowing over £25,000, so some lenders charge bigger penalties for loans over this amount.
- For those with a good credit score, dunk it on your mortgage!
Some secured debt companies claim they don't target those with poor credit scores and thus th
Those who have good credit scores can borrow more cheaply elsewh
Of course th
9. The MoneySavingExpert.com what to do before going for secured loans checklist.
Secured loans are not always wrong, in a limited range of circumstances, these ‘loans of last resort' are the right option. This appeal isn't against secured loans, but the normalization of these loans.
The following is a short version of the checklist contained in the articles on MoneySavingExpert.com, “Where to Start with Problem Debts” and “Secured Loans: Lending of Last Resort”, which includes links to more detailed articles on each of the subjects mentioned.
- Check credit reference files to see that there are no errors.
Details of your credit history are kept on file at the three credit reference agencies, Callcredit, Equifax and Experian. You have a statutory right to view these files for £2. It's worth checking to see that credit problems aren't being caused by errors on your file.
- Use any savings you have to repay your debt.
The interest paid on savings is usually far less than interest charged on borrowing. If you have any savings it is generally much better to use these to pay off debts than have outstanding borrowings.
- Do a budget
Doing an effective and detailed budget is a crucial step in any plan to sort out your finances. You need to establish how your spending matches up to your income. Th
- Look at credit card balance transfers.
If you have debts on credit cards, and a decent credit score, then actually using the right credit card rather than the wrong one is the cheapest way to act. Currently it is possible to shift debts to a credit card that gives you a permanent, long term cheap rate of 4.9%, meaning this unsecured debt is massively cheaper than any secured lending. It's also important to attempt to repay as much as you possibly can.
- Check out a normal unsecured personal loan.
These are normally cheaper than secured loans and your house isn't at risk in the same way – the cheapest are at around 5.5%, though those with worse credit scores will pay more.
- Even if you can't get new credit you can cut credit card interest.
The credit card industry tries to make us think that to get cheap interest rates you need to get new credit. Actually that's not true, using a technique called the ‘credit card shuffle' it is possible to substantially cut the interest rate of your existing credit cards. This involves asking your existing lenders if you can move debts from other cards to them at special rates. If they say yes, at that point you shift your debts to where they're cheapest, then repay the most expensive debts first.
- Consider remortgaging or adding debts onto your mortgage.
A mortgage is effectively a secured loan for your house, except, at rates of usually 4% to 6.5%, it's massively cheaper. It's often possible to simply shift debts onto your mortgage at this cheap rate – or for some who haven't remortgaged before you may be able to shift the debts and pay less by virtue of getting a cheaper rate. It should be remembered though that mortgage borrowing is over a long period, so this is best suited to those with the ability to pay off their mortgage more quickly.
- Seek non profit debt counselling.
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