Think all loans are created equal? Think again! A lot of it comes down to where you go to get your cash injection, and you may be surprised to learn that if you head to a high street bank, you could get a far worse deal.
That's according to the latest Moneyfacts UK Credit Card Trends Treasury Report, which shows that the gap between unsecured personal loan rates from high street brands and the rest of the market has widened, with high street rates now 2.3% higher, on average, compared with other providers (based on a £5,000 loan over three years).
This means that, if you were to take out a £5,000 loan with a high street name, you'd be charged £179 more in interest over the course of three years than if you went with another provider - you'd get an average rate of 8.5% on the high street, or 6.2% if you looked elsewhere. Both of these rates are lower than they were a year ago, as is the overall average, but the difference is clear!
|Overall - Average Loan APR at £5k||7.8%||7.1%||7.1%||7.2%|
|High Street Providers - Average Loan APR at £5k||8.8%||8.5%||8.5%||8.5%|
|Other Providers - Average Loan APR at £5k||7.0%||6.0%||6.0%||6.2%|
"Whilst unsecured personal loans remain competitive overall, there is still a chance that borrowers are paying over the odds by choosing a loan from a high street brand instead of a Best Buy alternative," said Rachel Springall, finance expert at Moneyfacts.
"Some consumers may prefer picking a high street brand for a loan because they have an existing relationship, but it is highly likely that a cheaper alternative can be found elsewhere. Loyalty doesn't always pay, and the only real value that can be had from having a high street loan is the same as with any other loan, namely if it were to offer the most competitive rate."
Typically, non-high street names take pride of place in the Best Buys, the only current exception to this being TSB; this provider is charging the lowest rate for a £5,000 loan of just 3.5%, as well as the lowest rate of 2.8% for higher tiers, with all other high street providers charging over 4% for the same loan.
"It remains the case that lower tier loans are charged more than the representative APR tiers from £7,500 upwards, so borrowers need to remember to compare loans on the exact amount they want to borrow," Rachel points out. "In addition, for small sums such as £3,000 or less loans can be more expensive, so they may well find it cheaper to use a low or no-interest credit card instead."
This means it's vital to make sure you're getting the deal that works for your requirements, but it's also important to remember that not everyone will get the best rates, as they're not guaranteed for each customer. However, you can improve your chances of being accepted for a loan - from a high street name or otherwise - by making sure your credit score is up to scratch, and making any improvements where necessary. Then you can use our personal loan calculator to find the loan that best meets your needs, and you'll soon see that the high street could be best avoided!
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.