22 August 2006
Over 500,000 borrowers could be paying over the odds in interest on their loan, according to new research by uSwitch.
The price comparison and switching website has undertaken a study which has revealed that 540,000 people who took out loans for less than £5,000 in the past 12 months have been paying interest rates of up to 19.9%.
With some borrowers paying almost three times the typical APR advertised by the same provider and some paying more than four times the Bank of England base rate, USwitch has warned that many lenders are using a tiered rates system to exploit borrowers.
The tiered rate system is utilised by lenders to offer lower interest rates for larger loans and higher ones for smaller loans – a problem compounded when consumers take a small loan amount over a longer repayment term of up to five years.
uSwitch research discovered the best loan package under £5 is currently 5.9% APR – a huge decrease from an average of 15.4% APR for the Big Five banks.
Nick White, head of personal finance at uSwitch, said: "Loans are undoubtedly the most cost effective option where a customer is looking to borrow large sums of money. However, with only a few exceptions the rates remain highly uncompetitive on small loan amounts.
"People really need to shop around when they're looking to borrow less than £5k and make sure they are not enticed by headline grabbing rates for smaller loans – providers such as Northern Rock (5.9% APR) and Moneyback Bank (5.6% APR) represent the exception rather than the rule. It would be really encouraging to see more mainstream lenders following this example and reducing the typical APR on lower tier loans."
Compare secured loans and find the best secured loan for you with the uSwitch.com loans comparison service.
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