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The great loans unknown

19th June 2014 Print

Sainsbury’s Bank Loans reveals that 5% of Brits are still paying off a personal loan they took out more than three years ago and, with falling rates, many could save money if they were to take out a new competitive loan today,  using this money to pay off their existing one.  

The supermarket bank's research worryingly 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, which is currently running a rate sale (until Monday 30 June at 3pm) and is offering personal loans starting from 4.2% APR, 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. Sainsbury’s Bank has developed a personal loans switcher calculator that will help people work out if they could save money by doing this, which is available to view via sainsburysbank.co.uk/loans.
 
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.”
 
Those with outstanding personal loans, taken out within the past five years, claim that on average they still have to pay off £7,020, and 51% say that they still owe over £5,000 on their loans.
 
Research from personal finance research company MoneyComms reveals that over the last three years (January 2011 to 2014) Sainsbury’s Bank personal loans for balances of £3,000, £10,000 and £15,000 over repayment periods of three and five years appeared in more top five positions within monthly market best buy tables than any other mainstream provider.  The Bank was also recently recognised for its consistent best buy position, named Most Consistent Loan Provider by Moneynet.
 
During the period January 2011 to January 2014 MoneyComms reviewed historical Moneynet awards best buy data across three different personal loan tiers.
 
The comprehensive analysis covered a total of 108 months of Moneynet personal loans data and focused on the five lowest rates on the market for sums of £3,000, £10,000 and £15,000.
 
Sainsbury’s Bank appeared in all 108 monthly best buy snapshots, the only provider to do so.
 
The MoneyComms research also found that the Sainsbury’s Bank Shopper Reward Loan is the only personal loan that offers on-going rewards to customers (double Nectar points on Sainsbury’s shopping for two years).  It is also one of only two loans on the market that offers rewards for taking out a loan (5,000 bonus Nectar points).
 
Sainsbury’s Bank has a Price Promise Guarantee on its Standard personal loans, which means that if you are offered a "like for like" loan that has a lower APR (Annual Percentage Rate) with another lender, Sainsbury’s Bank will beat it.
 
For further information on Sainsbury’s Bank Loans, log on to sainsburysbank.co.uk/loans.