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Cash back loans: 'Don't be taken in'

09 October 2006
Financial advice website has warned consumers not to be duped by the new fad of cash back loans beginning to emerge in the lending market.

Nationwide Building Society has joined Moneyback Bank in offering cash back on personal loans, dependent on a number of criteria, including a stipulation that you must take out the lender's own payment protection insurance.

But Moneyfacts' Michelle Slade, a personal finance analyst, has said that the cash back offers are more gimmick than good deal and that a better offer can be found by shopping around for the best rates.

"While the prospect of a cash payment from your loan provider may sound attractive, over the term of the loan, better deals can be found," she noted.

"Opting for a loan with Northern Rock, currently offering a best buy rate of 5.7 per cent you could save £214.03 over the Nationwide BS loan, even when taking the promotional cash back offer into account.

Ms Slade also cautioned consumers against using lenders' own insurance policies because of the high premiums and more stringent rules on claiming and payments.

"These [independent] policies are more flexible, paid on a monthly basis and most importantly very competitive," she said.

"The cost of protection on a £5,000 loan over three years could be reduced by as much as £1,000, by choosing an independent provider."

To find out more about, and shop around for, loan insurance, click here.

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