Loans: Do Not Be Fooled

It used to be so simple to take out a loan. You borrowed money, and then paid it back. Nowadays, you have to be on guard for so many angles. Online rates, typical rates, PPI (Payment Protection Insurance), hidden fees, early repayment penalties, the list goes on and on.

Now, as many people are considering personal finances in the wake of the holiday spending period, news is emerging that loan rates are hitting new highs and the pricing is more confusing than ever before. Following the base rate increase in July of last year, 35 core loan providers have increased their personal loan rates. Telephone and "branch" rates have increased by up to five times more than online rates according to comparison service uSwitch.com.

At the same time, many of the UK high street banks persist with so-called "personal pricing" for applicants who come in to branches to apply. By not advertising typical APRs, banks are provided the perfect smoke screen to work with a non transparent pricing scheme. For example, following the Bank of England's increase to the base rate of 0.25% in July (to 5.75%), offline high street personal loan rates have increased by approximately 1.0% APR across the board.

This serves to highlight how comparing for a loan online can make a big difference to the consumer. Consumers need to approach "personal pricing" with great caution, as it is essentially a way for the banks to be non transparent and charge higher rates to unwitting consumers. By avoiding comparisons of "typical APR" and providing "personal rates", lenders are sure to be charging higher rates to consumers who do not do their research.

The five biggest banks in the UK account for over 40% of the personal loan market today and all have turned to personal pricing schemes in their branches in the past 18 months. Abbey National, Bank of Scotland, Barclays, Clydesdale Bank, Halifax, HSBC and Yorkshire Bank all have adopted schemes which mean consumers will have no way of knowing what rate they will be offered untill they approach the bank. Only the Royal Bank of Scotland and Natwest (basically the same bank anyways) have not yet resorted to these tactics. Borrower beware.

-by Ed Ward, Finance and Research Analyst for Camelot Finance. Submit your personal finance related questions to enquiries@camelotfinance.co.uk and see them answered here! Apply for a mortgage or a personal loan for any purpose today and we will provide your with a free, no obligation loan offer.