Millions wasted on personal loans from big high street banks

Borrower apathy and a lack of understanding of Annual Percentage Rates (APRs) could be costing UK borrowers over one quarter of a billion pounds, research from Alliance and Leicester Personal Loans reveals.

With typical interest rates from some of the largest UK retail banks over 10% APR for personal loans, people who took out a loan in the last year will fork out over £285 million more in personal loan interest payments than they would if they had a low rate loan from Alliance & Leicester at 5.9% APR (typical).

On an individual personal loan of £7,500 paid over 60 months, borrowers could be unnecessarily overpaying by more than £800 if they do not shop around for a competitive deal, and instead opt for a more expensive loan over 10%.

Research from Alliance & Leicester Personal Loans has also revealed that a staggering one in four (23%) of people have used store cards to help pay towards their Christmas spending. Of these over half used store cards simply because they were offered them at the point of purchase. This is despite eye-watering interest rates, with some reaching almost 30% APR, which can easily make the effects of those festive purchases last much longer than the Christmas hangover.

In recent research, one in five people (21%) stated that they have made a financial New Year resolution for 2007 to reduce their personal debt. Those with this resolution should consider switching their debt to a low-rate personal loan, which will pay off their debt in an agreed timeframe. But going straight to a big high street bank for a personal loan could cost more than necessary.

Richard Al-Dabbagh, Senior Personal Loans Manager at Alliance & Leicester commented: “We have known for a while that the big high street banks do not tend to offer the best deals, whether it is on current accounts, mortgages or personal loans. This research shows the staggering amount that people are overpaying for uncompetitive personal loans, and how much the big high street banks rely on borrower apathy and lack of financial understanding.

“With many more people starting to feel the pinch and tighten their belts, a good first step is to look around for a good personal loan. It might only take five minutes, and could save you a hundreds of pounds. If you already have a personal loan, it can be worthwhile to switch your loan to a cheaper lender.”

Nick White, Director of Financial Services at independent price comparison and switching website uSwitch.com, said: “The loans market is a fast changing environment with interest rates changing regularly. Switching your personal loan can be good for your finances and significant savings can be made, but borrowers need to check the terms and conditions of their loan, as there may be elements of the contract that make switching a less cost effective option. These research findings highlight the amount of money some people are losing by sticking with an uncompetitive loan, so switching should be explored.”

For those considering applying for a loan or switching provider, Alliance & Leicester's website, alliance-leicester.co.uk, provides access to useful tools to help guide them through their financial choices.

The site contains a Loan Calculator which lets people work out how much they can afford to borrow and decide how long they wish to spread their repayments for.

Alliance & Leicester personal loan customers can benefit from the following:

An unsecured personal loan from as little as £1,000 to as much as £20,000

A low typical APR of 5.9% for loans of £7,500 - £20,000 for telephone and Internet applications, and in branch for Premier current account customers

Repayment over one to five years

Fixed monthly repayments for the period of the loan

Quick and easy application, online, via the phone or in branch

No arrangement fees

Optional loan protection for added peace of mind