Half A Million Brits Are Being Charged Too Much On Their Personal Loans
New research from uSwitch seems to indicate that the less you borrow on a personal loan in the UK the more likely you are to be paying interest rates that are higher than the lender’s advertised Annual Percentage Rate (APR).
Indeed, borrow less than £5,000 and there’s a very good chance that not only are you borrowing at an APR that is significantly higher than the lender’s APR, the interest you’re likely to be being charged, at 19.9%, is competitive to some credit card interest rates. These rates are also four times higher than the Bank of England’s base rate – and that’s after you take into consideration the recent rise in the Bank of England’s base rate!
Given that they’re paying as much as three to four times the going market rate for loans of higher amounts, particularly hard hit by the banks’ policy of charging different APRs depending on the amount that is being borrowed are the estimated more than half a million Brits who took out banks loans of less than £5,000 in the last year and who may now have a very valid and justified complainant that they’re being unfairly hit by this policy of applying different interest rates depending on how much is being borrowed.
Nonetheless, UK loans do still remain one of the cheapest possible ways for Brits to borrow large sums of money (over £5,000) and so the costs of funding for small loans (under £5,000) by UK banks should be viewed with caution. Shop around for the cheapest personal loan possible is also the advice of Nick White, head of personal finance at uSwitch, who notes that interest “rates remain highly uncompetitive on small loan amounts” in the UK. This appears to be the case regardless of whether or not the personal loan is secured or unsecured as UK lenders still apply a tier based system to the interest rates they charge.
Alternative borrowing, such as a
0% credit card, should also now be included in any alternatives you are looking at if you are considering taking out a small loan in the UK with a very limited repayment period. For example, if you want to borrow less than £5,000 over a period of less than 12 months you may well find that borrowing this on a UK credit card is much cheaper than taking out a loan with a UK bank. Alternatively, it may just be the times for Brits to start thinking of borrowing larger sums of money just to help reduce the cost of the borrowing.
Richard Smith
29th August 2006
External Links
More Information:
- Loan Penalties - Our article on various loan charges
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How do you find the cheapest loan? Through a combination of factors that include understanding your credit score, determining the best type of loan for your purposes, and shopping around
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Chances are if you were shopping for a home theatre system, you would shop around to find the best deal. So why not shop around for a loan?
