UK borrowers face tougher lending criteria

Anyone looking to take out a new credit card or personal loan should do so before 1 February to avoid new regulations which mean fewer borrowers will receive the advertised rate, according to UK comparison site, moneysupermarket.com.

The Consumer Credit Directive (CCD) comes into force next month, and is designed to improve transparency and protection for consumers when applying for unsecured credit European-wide. However, one element of the new legislation negatively impacts UK consumers, with only 51 per cent of successful applicants receiving the advertised rate. Currently, around two thirds (66 per cent) of successful applicants for credit products should secure the advertised rate. This move aligns UK credit advertising rules with those in the EU and only applies to unsecured products.

Tim Moss, head of loans and debt at moneysupermarket.com comments: "If you are looking to apply for a credit card or personal loan then you should look to apply before February when the chances of being accepted at the advertised rate diminishes. However, it is important that you understand your credit file before you apply. Those with less than perfect credit histories are more likely to receive higher rates so understanding your credit file will be more important than ever. "

Lenders now have to make borrowing examples clearer and provide more details about credit agreements. A lender who rejects an application because of the customers credit profile must inform them of this and identify which credit reference agency was used to make the decision. Consumers will also receive greater buying protection under CCD rules; anyone using a credit card or personal loan for transactions over £100 will receive increased protection up to £60,240 - up from £30,000. Therefore if you have any problems with the goods or services you are buying you can hold the credit provider jointly liable.

Tim Moss continued: "While increased transparency from providers can only be seen as a good thing, the fact significantly fewer consumers will be offered the rate they apply for represents a serious step backwards. There is also a danger lenders could take advantage of the Consumer Credit Directive as they will be able to offer higher than advertised rates to a much higher proportion of successful applicants.

"Ultimately consumers will always need to borrow money and the best defence against the new regulation is for borrowers to check their credit profiles, understand how the application process works and choose wisely when applying for any credit product."