Three in five (60%) of British borrowers admit that they are unaware of the interest rate being charged on their loan, research by Mintel has revealed. Given that 61% of adults owe money on a loan or credit product – credit cards (37%), current account overdrafts (16%) and personal loans (12%) being the most popular – this means a worrying number of people could be in the dark, and potentially paying over the odds in the process.
The research also showed that although 58% of consumers spent time trying to find the best deal possible when they took out their last unsecured loan, 48% of consumers said that it is more important to be accepted for the loan than the rate of interest charged.
This could prove to be a false economy, as a higher interest rate means higher repayments – which can have a significant impact on monthly budgets. It's of course vital to be as confident as possible that you'll be accepted for a loan, but the best way to do that is to ensure your credit rating is up to scratch.
You'll want to start by checking your score with a credit check provider – some, such as Experian, offer trials that allow you to access your credit report for free – and noting where any improvements can be made. Not only can this give you the best possible chance of being accepted for a loan, but the better your credit score the better your loan rate is likely to be, resulting in lower repayments in the process.
Find the best loan rate
Using online comparison charts such as the Moneyfacts.co.uk loan and credit card Best Buys often provide consumers with an easy way of shopping around and seeing what the best available rates are without commitment. According to the research carried out by Mintel, arranging loans online was more popular with consumers than using offline methods, with 56% of borrowers arranging their last loan online compared to the 40% who steered clear of the computer screen.
Sam Marks, financial services analyst at Mintel, said: "The fact that so many borrowers don't know the interest rate they're paying on their loan suggests that many Brits simply opt for the most convenient option, rather than shopping around. Half of consumers say they didn't consider other ways of borrowing when taking out their last personal loan, which suggests that many don't have the time to consider all of the options open to them.
"The market is still heavily reliant on cross-selling as most consumers resort to checking rates with their main current account provider. However, price comparison websites and the rise of soft-searches have given consumers a wider array of lenders to choose from and this has increased transparency in this market."
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