How Loans in the U.S. and U.K. Differ
If you’re looking for a loan or dealing with debt, a lot of the specifics about terms and conditions will vary based on where you live in the world.
In one country, you might find that the interest rates are more competitive than another. In the United States, loan rates are currently extremely low because of the Federal Reserve’s policy of keeping the federal funds rate near zero. For example, you might pay 4% for a mortgage in the United States that would be 6% or 7% in the United Kingdom.
This is also true for savings rates. You can currently get an interest rate of 6% on your money if you live in Australia, but are lucky to get 1% in the United States and 3.15% in the United Kingdom. Some savers even put their money in international CDs to get better interest rates. They do face the risk of having their currency appreciate, which would cause them to lose money.
The other big differences that you will see relate to how regulations and laws are written in the country that the loan is taken out of. In the United Kingdom, the Financial Services Authority provides regulation of all types of financial services. In the United States, a patchwork of agencies including the Securities and Exchange Commission, the Consumer Financial Protection Bureau and a variety of state agencies provide regulation over financial products.
In the United States, the regulations over what interest rates can be charged vary significantly on a state-by-state basis. Each state regulator sets a maximum interest rate that can be charged on loans, making some states more open to high-interest loan services such as payday loans than others. Additionally, there is a federal regulation about the maximum interest rate that military service members can be charged when on active duty.
Ultimately, there are far too many differences in loans in the U.K. and loans in the U.S. to describe them all in detail, but know that if you’re moving from one of the countries to the other, you have a lot to learn. Before taking out any sort of financial product in a country that you’re not familiar with, make sure to read up on the lending practices in that country and read the details of anything that you sign thoroughly.