Sainsbury’s Bank Loans reveals that 5% of Brits are still paying off a personal loan they took out more than three years ago.
The supermarket bank’s research shows that an overwhelming 65% of people surveyed said they did not know they were are allowed to ‘switch’ a personal loan to another provider before the end of the loan term and an additional 18% wrongly stated that you are not allowed to. Only 17% – the minority of people – correctly stated that you are allowed to.
In line with the Consumer Credit Directive, anyone with an unsecured loan has the option of early settlement, allowing the possibility of transferring from one provider to another with early repayment charges capped at two months interest in most cases. In the final year of a loan, early repayment penalties cannot exceed 0.5% of the amount being repaid early and in the first year of a loan the early repayment penalty cannot exceed 1% of the amount being repaid.
Market analysis by Sainsbury’s Bank reveals that average personal loan rates have fallen in recent years. For someone who borrowed £10,000 three years ago, over the course of five years, the difference in repayments between an APR of 4.2% and 6.7% (the best rate available in 2011) could be £10.96 per month.
People with loans they took out a few years back could consider whether they would be better off by switching. They will need to consider the interest they have already paid and any early settlement penalties.
Simon Ranson, head of banking at Sainsbury’s Bank said: “When you consider the savings people could be making it’s alarming that the vast majority of people do not know or think you cannot ‘switch’ a personal loan to another provider during the term of the loan.
“We’re offering best buy competitive loan rates, and with so much competition in the market, those who took out personal loans a few years ago could potentially save money by taking out a new loan now, even when you take into account early repayment charges. Those thinking of switching should make sure they enquire about their early repayment charges first.”