Variable Loan Costs

We all know that there are a wide variety of different personal loan providers out there, all offering different deals and incentives for choosing them. In fact we’re constantly bombarded with advertising to this effect in the media and from our banks and building societies. Does it follow that Britain is clued up about the ins and outs of obtaining the best deal out of this thriving market? According to Sainsbury’s Bank, there are still myths surrounding personal loans that are preventing consumers from getting the best deal and costing the 2.8 million people who will take out personal loans this year around £650 million in higher interest rates over the lifetime of their loans.

One of these myths, which could explain why consumers are paying so much more for their personal loans, is that you need to already bank with an institution to take out a loan with them. Not only is this not true, but high street banks and building societies often don’t offer the best deal on personal loans. However 34% of people believe they do and since 2000 67% of consumers who have taken out a personal loan have chosen their own bank or building society. Simply by walking down the high street it’s obvious that this isn’t always the cheapest option.

Sadly this isn’t the only way in which the way consumers go about obtaining a personal loan could be costing them money. Further statistics from Sainsbury’s Bank indicate that a large number of people, 38%, only obtain one personal loan quote before signing up for a deal. With such a range and breadth of loan companies out there it’s essential to shop around if you want to get the best deal for your circumstances. However often even when we do shop around we still limit our choices, a further 13 % only obtain two quotes.

Often it doesn’t seem like that big a deal to us at the time, but when you look at the savings that can be obtained by shopping around it’s clear that we could be spending far more than is necessary. Sainsbury’s estimate that by shopping around you could save five percent on your loan APR which can work out as more than £1,300 in loan repayments. Few of us would have problems finding ways to spend that extra cash, whether it’s debt reduction, home improvements or simply treating yourself with the savings you’ve made.

3/6/05