Loans

The rising cost of living, loans and borrowing

by Madaline Dunn

Research shows that as the cost of living continues to rise, so too is borrowing – whether that’s via credit cards, or payday loans. While it can be tempting to opt for a loan in financially trying times, it’s important to keep your wits about you, and not rush into a decision without thoroughly researching.

At The Salary Calculator, we know how challenging it can be navigating the world of borrowing and loans, so below, we’ve outlined some top tips to bear in mind to keep yourself safe. This article will explore:

  • Why the cost of living is getting more expensive
  • How more people are borrowing than ever
  • How to protect yourself when borrowing

How is the cost of living getting more expensive?

The cost of living has reached crisis levels, leaving many in UK faced with their worst financial situation in decades. Fuel, housing, and food are all getting more expensive. According to the ONS, in February, Inflation hit a new 30-year high of 6.2%, and housing costs and services increased by 7.2% within the last year, too. Moreover, rental prices went up 2.3% and homeowners saw a hike of 2.5%.

Within the same time frame, transport costs have seen an increase of 11.5%, with petrol and diesel prices rising and even hitting record levels in February. Meanwhile, food and drink prices have soared by 5.1% – according to statistics, prices for bottled water, soft drinks, juices, meat, sugar, jam, syrups, chocolate and sweets increased the most.

Looking ahead, as the Russia-Ukraine war continues, with Russia and Ukraine being responsible for 30% of global wheat exports, food prices are only set to rise further.

It’s not just food, fuel and housing that’s seen a hike, either. Clothing and footwear have taken a hit, too, rising by 8.9%. Likewise, furniture, household equipment and maintenance saw a similar increase, rising by 9.2% in the past year.

Alongside the price rises, wages across the UK are now falling at their fastest rate since 2014. This is, again, because inflation is spiralling out of control.

More people borrowing than ever before

People across the UK are feeling the pinch as prices continue to soar and are turning to borrowing to help them cope with increasing financial hardship. According to figures published by the Bank of England (BoE), people borrowed a net £1.5 billion on credit cards in February, which is reportedly the highest since records began. This is even up from 2020, which saw nearly 9 million of the UK’s poorest significantly increase their borrowing amounts.

Joanna Elson, the chief executive of the Money Advice Trust, which runs the National Debtline and Business Debtline, said these borrowing statistics are “an indicator of the underlying challenges households face in meeting the growing cost of living” as she called on the chancellor to provide more targeted help for hard-pressed households.” Adding: “Our concern is that more people will be pushed to credit to cover rising bills, which could be storing up problems further down the line when repayments are due.”

Of course, credit card borrowing is not the only kind of borrowing, payday loans are lurking out there, too and according to reports, interest in these kinds of loans has been ballooning in recent months as living costs surge. Research from Raisin UK has found that in the last 12 months, internet searches for these kinds of loans shot up by 350%.

Experts, however, warn that payday loans, while sometimes attractive, are an easy route into a slippery path of debt. Kevin Mountford, Co-founder of Raisin UK, outlined: “It is easy to fall into a cycle of debt with these schemes if you continually require them to cover shortfalls. With rising interest rates, payday loans will most likely leave you struggling financially, even more as you will owe these companies a continually growing amount of money.”

Adverts for this kind of predatory loan are on the rise and appearing on Google, too. A recent report found that those who searched terms like “quick money now” and “need money help”​ were directed by Google to sites offering high-interest loans to those in financial difficulty. One site advertised when individuals searched for the above terms was Tendo Loan, which offered “Cash in 10 minutes guaranteed. 3-36 months. No credit check!” The site went on to say that those looking to find a loan could have it “delivered faster than pizza!”

How to protect yourself when borrowing

It’s undeniable that millions of people in the UK are facing increasing financial hardship, and predictions are that it is only going to get worse. By 2023, it’s said that as many as 16 million people could be officially classed as living in poverty. So, it’s understandable that some may be faced with no other option than to borrow. That said, when borrowing, regardless of who you’re borrowing from, it’s important you safeguard yourself. Below, we’ve highlighted some top tips.

Research, research, research

When financially desperate, it’s easy to get caught up in signing a loan that you know little about. So, it’s important to make sure you research. Research into the company, make sure that they’re reputable and trustworthy, and get all the facts about the loan, including and especially the small print.

Don’t get conned into borrowing more than you asked for

Lenders may try and talk you into borrowing more than you were looking for or encourage you to opt for a different kind of loan. Make sure whatever decision you make is informed, and not pressured. Take your time, and stick to your guns.

Don’t overcommit, and make sure you can pay back whatever you borrow

Make sure you review your finances before committing yourself to a loan. Entering an agreement with high-interest rates may lead you down a debt hole that’s hard to get out of, and leave you in a worse position than when you started.

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Tuesday, April 5th, 2022 Economy No Comments

None of the content on this website, including blog posts, comments, or responses to user comments, is offered as financial advice. Figures used are for illustrative purposes only.

A guide to ‘Buy Now, Pay Later,’ deals, the dangers and safeguards

by Madaline Dunn

In recent years, ‘Buy Now, Pay Later’ deals (BNPL) have become increasingly popular and were particularly boosted by the pandemic, which created a significant increase in online shopping. Data from the FCA recently revealed that in 2020, the use of BNPL nearly quadrupled and is now at £2.7bn.

These deals offer buyers the option to pay for their purchase over a period of time, rather than all at once, and have been dubbed by some as “the future of millennial finance.” However, while this once niche form of credit has benefits, it’s not without its dangers. More and more people are raising concerns that it encourages unsustainable spending, leaving many with debts they can’t pay off. 

At The Salary Calculator, we’ll help you understand:

  • The ins and outs of BNPL
  • Why BNPL deals can be dangerous
  • The safeguards out there to protect you from harm 

What is ‘Buy Now, Pay Later’?

Buy Now Pay Later (BNPL) agreements allow buyers to purchase items on credit and pay for them later down the line, typically through interest-free instalments. For many, this seems like a relatively hassle-free payment method and has been primarily adopted by the under 30’s demographic.

There are a few different types of BNPL deals, the first works on the basis of a buyer splitting their payments into segments, typically with an upfront payment. Following the first payment, the buyer agrees for the provider to take the rest of the money over an agreed period of time. 

Another example of a BNPL deal works by the buyer delaying their payment for purchase for a set number of days, usually between 14-30 days.

The final form of BNPL involves arranging a formal payment plan at the point of purchase, and the buyer may have to pay interest and may have their means-tested.

Some examples of BNPL providers include Clearpay, Laybuy and Klarn, the biggest provider.

Speaking about the draw of BNPL to The Guardian, one BNPL investor said: “It increases the basket size, and it also reduces dropped baskets.”

Why are BNPL deals dangerous? 

Of course, as with anything, there are drawbacks to BNPL deals, and they have the potential to put consumers at significant risk.

Speaking about the dangers associated with BNPL deals, Sue Anderson from StepChange, a debt charity, said: “Buy now, pay later services don’t give individuals enough time or protection to stop, pause and understand the consequences of their purchase. Sometimes this even means people end up using BNPL at the online checkout without actually realising they have signed up.”

She added: “Second, affordability checks are only used by some BNPL lenders, and protections against taking out multiple BNPL loans are lacking. Finally, due to a lack of regulation, it’s not clear whether these services are treating customers fairly and in a way that is consistent with other credit products.”

Meanwhile, Citizens Advice likened BNPL deals to “quicksand” in that they’re “easy to slip into” but “very difficult to get out of”.

Of course, BNPL deals don’t take into consideration circumstance changes either.

This year, in response to these concerns, the government announced this area would be regulated by the Financial Conduct Authority (FCA) due to the risk posed to consumers. Now a consultation is underway to assess how to navigate the regulation issue.

What safeguards are out there to protect buyers from harm?

For a long time, personal finance experts have called for regulation around BNPL deals, and now it appears the government is finally taking heed with their consultation.

Going forward, the government is proposing that BNPL users should have the ability to take complaints to the independent Financial Ombudsman Service. On top of this, the government has also proposed that advertising and promotions relating to BNPL should be regulated by, for example, the Advertising Standards Authority or the Committees of Advertising Practice.

Moreover, the government says that statutory protection should be outlined under Section 75 of the Consumer Credit Act. Further protections have been suggested in the form of compulsory credit checks so that those who wish to take on BNPL products can afford to do so. 

The consultation ends at the beginning of next year, so it’s unlikely we’ll see any immediate changes. That said, in the meantime, when encountering BNPL products, it’s important to ask yourself the following questions:

  • Can I afford the repayments?
  • Are there better options out there regarding borrowing?
  • Am I interested in buying this item because of the BNPL offer?

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Tuesday, November 2nd, 2021 Consumer Goods, Economy No Comments

Our guide to mortgages

by Madaline Dunn

Deciding to get a mortgage can be an extremely exciting move. That said, it’s not without its complications, and people can feel a little bit bewildered by the process. A recent study by Paymentshield found that over half of adults (52%) aged 18-34 have a poor understanding of the mortgage process. The study also found that 32% of 35 to 44-year olds have a similar lack of understanding.

That said, it’s important to make sure that you’re all clued up when it comes to mortgages so that you get the best deal possible.

It has been widely reported that there’s currently an ongoing price war in the mortgage market, with some lenders offering super-low rates. For example, HSBC and TSB recently unveiled mortgage rates below 1%, with an interest rate of just 0.94%. However, when being drawn in by low rates, it’s important to make sure you’re not caught out by other fees.

At The Salary Calculator, we’ll walk you through some of the basics of the mortgage market. This article will explain:

  • The different types of mortgage rates
  • How to access the better rates
  • Initiatives for first-time buyers
  • Best rated mortgage lenders
  • How to choose the right mortgage for you

The different types of mortgages

There are two types of mortgages out there:

Fixed-rate mortgages: This kind of mortgage will see you pay a fixed rate for a set period of time, usually from between two to ten years.

Variable-rate mortgages: This kind of mortgage is not fixed at a set price, can vary from month to month, and comes in a few different forms.

  • Tracker mortgages: This type of variable mortgage follows or ‘tracks’ a specific index, typically the Bank of England’s base rate, for a set period.
  • Discounted rate mortgages: This type of variable mortgage is set below the lender’s standard variable rate (SVR) for a defined period of time.
  • Capped rate mortgages: This type of mortgage is also variable, meaning it can go up or down, but a cap is placed on the level it can rise.

How to access the better rates

When looking to secure the best mortgage rates out there, several factors can improve your chances.

A good credit score is a big factor taken into consideration when lenders make a decision. A low credit score indicates that a borrower may be less financially reliable and more likely to default on payments in the eyes of a lender. Likewise, a high score indicates more stability and less risk.

However, it’s not the be-all and end-all if your credit rating isn’t the highest it can be. You can boost your score. This can be done by making sure you reliably make payments, keeping your credit utilisation low, and building your credit history.

To get the best deal on your mortgage, you must also compare deals. While you may think that you’ve found a good deal, without shopping around, you may miss out. There are lots of comparison websites out there that can help you with your search.

Another good tip for securing a good rate is to try and pay a large deposit if you can afford it. This will show the lender that you are less of a risk credit-wise and lead to lower interest rates.

Initiatives for first-time buyers

There are some schemes to help those buying a home for the first time to make the process a little smoother.

The First Homes scheme was introduced to create more affordable housing and offers homes at a discount of 30% compared to the market price.

The 95% Mortgage Scheme was introduced in the Spring Budget 2021 and allows individuals to borrow up to 95% of a property’s purchase price and secure a mortgage with just a 5% deposit.

Best rated mortgage lenders

In the UK, there are lots of mortgage lenders to choose from, over one-hundred in fact. Some of the biggest lenders include The Lloyds Banking Group, Nationwide Building Society, and Royal Bank of Scotland.

Trussle found, when comparing customer satisfaction, the mortgage lenders that scored the highest included Bank of Ireland, Post Office, and Aldermore.

Those that scored the highest regarding the fastest approval of new mortgage submissions included Halifax, BM Solutions, and HSBC.

Choosing the right mortgage for you

Each person will be looking for different things when choosing a mortgage; for example, you could be buying a house for the first time, remortgaging, moving house or even buying to let.  As a result, one size does not fit all.

Mortgage comparison websites are your friend here, and it’s also worth reaching out to a mortgage broker for advice. After all, choosing a mortgage is a life-changing and important decision that will affect you and your finances for years to come.

Moneyfacts, an independent money comparison website, lists that for home-movers, some of the lowest rates are currently offered by NatWest and RBS, which both have a rate of 1.04% for the first two years before returning to 3.59%. Both also have product fees of £995.00.

The lowest three year fixed rate for home-movers comes from Virgin Money, which offers a rate of 2.15%, before reverting back to 4.34% and has a product fee of £995.00.

First-time buyers, meanwhile, can secure one of the lowest rates from First Direct, which offers 2.69% fixed for two years, when it reverts to 3.54%. There is a £490.00 product fee.

NatWest also offers a low rate, at a fixed rate of 2.69%, before returning to 3.59%, with product fees of £995.00.

The lowest five-year fixed rate for first-time buyers can also be found at First Direct at 3.14%, which reverts back to 3.54% after five years.

For those looking to buy-to-let, The Mortgage Works offers a rate of 1.19% for two years before reverting to a 4.74% variable. This mortgage has a 2.00% advance.

Another mortgage with a low rate comes from Virgin Money, which has a rate of 1.48%, for two years before returning to a 4.54% variable, with an arrangement fee of £1995.

Virgin Money also offers the lowest 3-year fixed buy-to-let deal, with a rate of 1.71%, which reverts to a 4.54% variable. It has an arrangement fee of 4.54% Variable.

It’s worth noting that just because these providers offer the lowest rates doesn’t mean that they are necessarily the best deals. When making a decision, it’s important to factor in total product fees, incentives and the full costs. Rates are also constantly changing, so it’s best to review the charts regularly before settling.

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Wednesday, July 28th, 2021 Mortgages No Comments

Interest rates in the UK

by Madaline Dunn

When it comes to borrowing, be it for a mortgage or a loan, an interest rate will be applied to the amount you borrow. The same goes for any savings you accumulate. That said, it can be tricky to get your head around the ins and outs of interest rates.

According to a study conducted by MoneySuperMarket, 70% of those polled didn’t know what the base rate was. That means there are lots of people out there that could do with a helping hand.

At The Salary Calculator, we’ll give you the rundown of interest rates in the UK and make sure you’re updated with the latest. This article will explain:

  • What an interest rate is
  • What the base rate is 
  • What the current interest rates are
  • The different types of interest rates
  • Whether or not interest rates will rise
  • The pros and cons of the current low rates

What is an interest rate?

An interest rate refers to either the percentage an individual is charged for borrowing money or earned through saving. It is typically expressed as a percentage of the amount you borrow or save over a year.

What is the base rate?

The base rate or bank rate is the most important interest rate in the UK and refers to the rate at which banks and lenders are charged for borrowing. Currently, this rate is 0.1% which influences borrowing and saving interest rates.

Current rates

Interest varies from bank to bank, but often it can cost more to borrow less. According to MoneySavingExpert, the best interest rates for loans of between £3,000 – £4,999 range from 7.3% rep APR and 8.4% rep APR.

For larger amounts, for example, between £15,001 – £20,000, the best interest rates range from between 2.8% rep APR and 2.9% rep APR.

When it comes to savings, easy access accounts with best rates range from between 0.4% AER variable and 0.5% AER variable.

The different types of interest rates

There are a few different types of interest rates, these are:

Fixed Rate of Interest – With this interest rate, the amount you are paid, or the amount you owe, is at a set rate that remains unchanged throughout the term of your account. 

Variable Rate of Interest – Also known as a “floating rate,” with this interest rate, the amount of interest you are paid or the amount of interest you owe can change depending on the base rate.

When exploring loans and savings, you will likely run into two other terms, APR and AER. But what exactly do they mean? 

APR – Annual Percentage Rate: This refers to the total cost of borrowing money in a year (loan or credit card). Included within this are interest and standard fees.

AER – Annual Equivalent Rate: This type of interest applies to saving accounts and is the amount you earn in a year.     

Will interest rates rise?

It is difficult to determine for sure whether interest rates will rise. However, considering the current state of the economy, having shrunk by 19.8% in 2020, interest rates are unlikely to rise any time soon.

The pros and cons of the current low rates

When it comes to low interest rates, there are, of course, advantages and disadvantages. These are as follows:

Pros:

  • Lower interest rates make it easier for people to borrow money
  • When borrowing is made more accessible, this can drive investment
  • Low rates can also make housing more affordable by lowering mortgage payments

On the other hand…

Cons:

  • Lower interest rates can detrimentally impact savers because they earn less through interest
  • As a result, this can reduce the incentive to save
  • Low interest can also lead to people taking on more debt than they can afford 

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Friday, May 28th, 2021 Loans, Mortgages, Savings No Comments

Self-Employed Sole Traders in the new tax year – where do you start?

by Admin

[Sponsored Post]

The new tax year started on the 6th April – that we do know for sure.

At times it felt like everything else changed and at a very quick pace. Our world slowed down – working from home where possible, home schooling our children the #StayHomeSaveLives were on windows with rainbows.

People settled into ways of working from home with daily routines including video calls to keep connected with fellow employees, following pop quizzes on the radio or simply taking time to reflect. Kids following PE lessons, craft tutorials and Disney princesses via online platforms while parents worked.

As this way of life continues for the foreseeable how can you be more productive?

One main cause for concern is money, knowing your financial stance helps you plan for the future. By getting ready to calculate your 2019-20 tax return – you will have your income and tax liability ready.

Digital copies of receipts and paperwork can be saved allowing for a clear out of the home office.

Whilst you do not have to submit right now, being safe in the knowledge of your outgoings for tax means you can then focus on sales and plan for the future.

The government stepped up and offered financial support

As the pandemic picked up pace and businesses were restricted by the Government the self-employed sat waiting and hoping they would be thrown a life-line. Chancellor Rishi Sunak gave them the Self-Employment Income Support Scheme.

The scheme is open to self-employed individuals or a member of a partnership who:

  • Have submitted their Income Tax Self-Assessment tax return for the tax year 2018-19.
  • Traded in the year 2019-20
  • Are trading when they apply, or would be except for COVID-19
  • They intend to continue to trade in the tax year 2020-21
  • They have lost trading/partnership trading profits due to COVID-19

For a further in-depth review of the scheme please follow the link above or visit www.gov.uk

Please note you had until 23rd April 2020 to file your 2018-19 self-assessment tax return to be eligible for this scheme.

A further helping hand was offered for anyone who uses Payments on Account, they will have their normal payment due on 31st July deferred –  this payment won’t be due until 31st January 2021.

Another deferral was that of the VAT payments due before 30th June 2020, these will now not need to be made until 31st March 2021. However you will be required to file your VAT return.

There were earlier announcements made by the Chancellor in March 2020 with an emergency £330bn financial package to bolster the UK economy. These included a business rates holiday and for struggling firms, loans.

There were postponements too for the controversial tax reforms to off-payroll working rules, more commonly known as IR35 – these have been postponed until April 2021 to help ease some strain from the pandemic and the effect it is having on businesses and individuals.

In 2019, it was announced that the Personal Allowance would be increasing from £11,850 to £12,500. Thanks to the increase, the tax brackets in the UK were also to be pushed back. Specifically, the basic rate limit was increased to £37,500 and the higher rate threshold was set at £50,000.

In April 2020 the Capital Gains Tax allowance increased to £12,300. Anything above the allowance, though, will be taxed at 18% for basic-rate taxpayers and 28% for additional-rate taxpayers. The Capital Gains Tax Allowance is the amount you can make from the increased value of your possessions tax-free.

GoSimpleTax bring you their award winning software, which factors in all the latest updates.

With GoSimpleTax software, filing has never been easier as it does all the calculations for you and thanks to features that allow you to take a picture of expenditure and upload it to your records, as well as log all forms of income.

With the documentation you need in one place and learning resources to help minimise your tax liability further, all that’s left for you to do is press submit.

Take their free trial today, no credit card required.

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Tuesday, April 21st, 2020 Income Tax, Jobs, National Insurance No Comments

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