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It's often said that 'you don't get something for nothing' but in the case of personal loans it's often possible to borrow more without it costing you a penny. And we don't mean a few quid more - we're talking about literally hundreds of pounds for nothing. So if you're thinking of taking out a personal loan don't do anything without first reading this article.
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If you're looking for a loan you could be forgiven for thinking that the whole process is a simple one - shop around, find the best rate and away you go. However, if you're not careful you could miss a simple trick that can literally give you money for nothing. In fact it's so simple its laughable but don't expect the lenders to tell you - your ignorance is their bliss and it enables them to inflate their profits at your expense.
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The trick lies with the fact that most lenders operate a tiered structure of interest rates meaning that they charge less for larger loans. They justify this on the basis that it costs the same to process and administer a small loan as it does a large one so they would much rather lend fewer large amounts than lots of smaller amounts.
However, it also means that by carefully choosing your lender and selecting your loan amount you can often borrow quite a bit more without it costing you a penny more!
For example, Alliance & Leicester are currently charging 14.90% APR on loans up to £4999 but only 7.90% on loans between £5000 and £7499. What this means is that a loan of £4500 over 5 years will cost just under £105 per month and you will repay a total of £6278 over the term. However, for the same money you could borrow £5200 - an additional £700 - at an APR of 7.90% and make the same monthly repayment over the same 5 year period. In fact because the monthly repayments on the larger loan are very slightly less you even end up paying £8 less over the term giving you enough for a few drinks to celebrate your quick win.
The same thing applies with other lenders although they do not all change their tiers at the same trigger points so you need to spend a bit of time comparing rates at various loan sizes. For example Liverpool Victoria have a trigger point for lower rates at £9000 and the larger the loan size the more you can make. In this example, you would be charged 12.90% APR on a loan of £8500 giving you a monthly repayment of £150 and total repayable of £12678 over 7 years. However, for the same amount you could borrow £9900 - a whopping £1400 extra and benefit from a lower APR of just 7.40% giving you the same monthly repayment and meaning you repay £12,616 over the term which is £62 less than you would have repaid on the smaller loan.- that's what you call a win, win situation!
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