Many of us need a loan for some reason or another along the way, but around 65% of us don’t realise that, just like gas or electric bills, you’re able to switch your loan provider and potentially save some cash (moneywise.co.uk).
A lot of the reason for this is the fact that most of us don’t know our rights when it comes to credit. In 2011, the Consumer Credit Directive introduced a right to a ‘fair and objectively justifiable’ early repayment option. The Directive is full of various rights you have as a consumer, and obligations creditors must meet so it’s good to have a look at it to be up to date on where you stand.
Interest rates have steadily declined in the last few years. This means that if you took out a personal loan 5 years ago, the average interest rate was probably around 10.9 % APR. Compare this with the average rate now of around 8.04 % APR (February of 2018, Personal Loan Statistics, Finder.com March 2019), so there could be some considerable savings to be made if you switched provider.
How to work out if it’s worth switching?
You need to look at all the costs involved and weigh them up against the savings you could potentially make compared with your current loan.
For most unsecured personal loans there may be some sort of cost or penalty attached to repaying your loan earlier then agreed. So, make sure you investigate if any of these relate to you before you look into switching. Otherwise, the charges could outweigh the savings you might make.
There’s no set figure for early repayment, but the average is around the cost of 1-3 months interest (themoneycalculator.com), depending on the length of the loan.
You’ll need to bear in mind that switching loan provider is essentially taking out a new loan to pay off your existing loan with which you have lower monthly repayments going forward.
This means that, whilst your monthly repayments maybe lower, the overall cost of the loan may work out as more. Whatever you apply for, you’ll need to make sure your new loan covers the full cost of your current loan.
How to switch loan provider
Speak to your current loan provider to work out your likely settlement figure. This should include any early repayment fees and charges.
Take a look at the market, using comparison sites and eligibility tools, to see what rate you could be eligible for. If the rate is lower than your current one, then you could make a saving.
Calculate the total cost of your new loan and settlement costs and compare that with the cost of your current loan to see if you could make a saving.
If it looks like you could save you some money – all you have to do is apply for a new loan.
This may all sound a bit boring but some extra money in your account every month certainly isn’t!
Get all your info together and weigh up your options
Try out our tool which gives you an idea of what Neyber loan rate you could be eligible for before you even apply