Consumers could save £1.25 billion in interest by switching to a more competitive deal mid-term, according to uSwitch.com.
A study by the comparison site has found that unsecured personal loan
customers could make substantial savings of over £830 in interest by opting for a best buy loan at 6.5 per cent APR compared to an average loan at 10.9 per cent APR.
However, 2.5 million unsecured loan
customers say they wouldn’t switch because the savings are too small, while six per cent think that they simply are unable to as the terms of their loan agreement prohibit it.
In reality, the actual cost of switching is low and one in four lenders will not charge a penny and of those that do, 67 per cent will only charge one month's interest as a penalty – which works out as an average payment of £39.
Over the past few month alone, eight high street loan providers have lowered their rates by up to 5.5 per cent APR, indicating that now is a very good time to take advantage of rates.
Mike Naylor, personal finance expert at uSwitch.com comments: "In such a volatile unsecured personal loan market, five years is a long time to sick with the same provider as rates fluctuate constantly.
"For example, in the second half of 2007, more than 30 providers increased loan rates by around 1 per cent APR. However, since the last base rate cut at the beginning of December, eight major lenders including Alliance and Leicester, Moneyback, Lloyds, Barclays and Sainsbury’s have already cut their rates by up to 5.5 per cent APR.
"With more base rate decreases predicted over the next 12 months it’s possible that we may see other providers following this example and offer more competitive deals than those available last year."
Further analysis has shown that apathy and confusion at the myriad of offers available is one of the key factors contributing to consumers' failure to take advantage of loan cuts. uSwitch found that 2.5 million people think the savings from switching a loan mid-term are too small, 1.6 million loan customers have think it’s too much hassle, while 14 per cent wouldn’t even consider switching mid term.
Mr. Naylor concludes: "Switching unsecured loan providers mid-term is quick, easy and, in many cases, a money saver. Unfortunately, it’s just not a practice that consumers are familiar or comfortable with. However, we can’t ignore the fact that lending practices are getting tighter so the option to move may not be available for much longer."
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