Public in dark over repayment penalties
23 August 2003
Over a third of the British population is unaware that the majority of personal loans operate repayment penalties.
A survey has revealed that 16 million Britons are unaware that early repayment penalties are charged by loan companies.
Worryingly it is the student population – who will make up a large number of those taking out loans – who are most unaware of the financial implications of early repayment, as a staggering 56 per cent of those surveyed admitted to being in the dark.
In the survey carried out for Intelligent Finance, ICM also discovered that approximately 90 per cent of respondents also felt that repayment penalties should be abolished all together.
Furthermore, they also believed that loan companies should be forced to make much clearer what the penalties are.
Despite a clear objection to repayment penalties, current research shows that 75 per cent of loan companies do charge consumers for redeeming their loans early. And with at least seven in every ten customer re-paying their loan early, it is estimated that around an extra £336 million is paid in these penalties.
A spokesman for Intelligent Finance, Grenville Turner, explained why loan companies should be more honest: "It's not surprising so many people are unaware of redemption penalties on loans when they are often hidden away in the small print. Yet these cost borrowers millions of pounds in extra interest payments every year."
"Our challenge to those who charge repayment penalties is simple – if you think these are so reasonable, stop hiding them in the small print and be more upfront with borrowers about the costs of early payment."