28th September 2015
The ongoing cuts to unsecured personal loan pricing now means that customers who switch or take out a new loan today can save hundreds of pounds over the fixed term of their agreement, according to Moneyfacts.co.uk.
With an estimated 6.5m people relying on credit to keep up with essential outgoings, it’s clear to see why taking time to consolidate debts into a single, more affordable monthly payment could make a huge difference to people’s finances.
On average, well-known banks now offer loans that are £396 a year cheaper in interest payments for a £7,500 loan over a five-year period compared with 2013, while loans from challenger brands are £222 cheaper for the same loan agreement.
Not all customers will be given the lowest rates advertised but even so, the difference in cost across the board has fallen so heavily that borrowers could potentially save on higher interest charges by paying off an old loan with a new one taken out today claims Moneyfacts.
|Main banks – £7,500 loan over 5 years (APR), average APR and average total interest shown|
|Average rate/cost||2013 – 6.4%||2013 – £1,255.30||2015 – 4.4%||2015 – £859.30|
|Difference in interest (2013 vs 2015)||£396.00|
|Includes: Barclays, first direct, Halifax, Lloyds Bank, NatWest and Santander|
|Challenger banks – £7,500 loan over 5 years (APR), average APR and average total interest shown|
|Average rate/cost||2013 – 5.8%||2013 – £1,128.00||2015 – 4.7%||2015 – £905.70|
|Difference in interest (2013 vs 2015)||£222.30|
|Includes: Hitachi Capital, M&S Bank, Metro Bank, Sainsbury’s Bank, Tesco Bank and The Co-operative Bank.|
Source: www.moneyfacts.co.uk 28.9.15
Rachel Springall, finance expert at Moneyfacts said: “Shockingly, many consumers still rely on credit to manage their outgoings each month, but they could be making the mistake of turning to some of the most expensive sources, such as overdrafts, high interest credit cards or even payday loans. However, by taking time to review their finances, consumers could consolidate their debts to a manageable monthly payment with an unsecured personal loan.
“The loan price war has made this option for managing debt even more competitive, and will no doubt grab the attention of prospective borrowers. Although only 51% of successful loan applicants are required to get the advertised APR (Annual Percentage Rate), the changed cost of loan pricing today compared with that of just two years ago means that borrowers can still save money by switching their loan even if they don’t get the lowest rate on the market, subject to early payment charges.”
Revisiting loan agreements and weighing up whether further debt consolidation is required is vital to prevent borrowers paying unnecessary interest. This can also stop them from applying for more credit elsewhere or using their overdraft excessively warned Springall.
She added: “While their current lender may be a logical first port of call for many borrowers who are looking for a better loan rate, consumers must never blindly agree to new terms, especially if it’s for an unnecessary loan extension. Reduced monthly repayments may look better on paper, but this gives a false sense of achievement because they are in fact just locked into a longer repayment term.
“The simplest way to tell whether you will be on a better deal is to compare the total cost of different loans side by side. Even if borrowers don’t get the lowest rate advertised, it’s likely that switching will put them on a more cost-effective deal than two years’ ago, which could leave them hundreds of pounds better off.”