press release

LENDERS are maxing up takings on loans by keeping quiet on the facts about tiered rates – and are raking in the same profits whilst lending borrowers less, according to new research by personal finance data comparison site Moneynet.co.uk.

“Borrowers are limiting themselves to the smallest loan they believe they can manage, unaware that they could borrow hundreds more without it costing them a penny extra,” says Moneynet.co.uk chief executive Richard Brown.

“Amongst all the doom and gloom of scary debt statistics and looming economic disaster, consumers should be cheered by this nugget of good news, especially with the expense of Christmas firmly in the frame.”

Consumers shopping around for the best loan deal could be forgiven for thinking that it’s a straightforward business of finding the best rate and taking the money. But there’s a simple trick that can quite literally give them thousands of pounds extra for absolutely nothing.

“It’s not a secret but borrowers shouldn’t expect their lender to volunteer the information,” says Brown. “Your ignorance is their bliss and is a cushy way for them to bolster profits from doing nothing at all.”

The trick lies with the fact that most lenders operate a tiered structure of interest rates meaning that they charge less for larger loans. The basis for this justification is 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.

“With a bit of careful research, consumers can borrow what they really need without it costing them more than they can afford,” says Brown.

“For example, Alliance & Leicester are currently charging 14.9% APR on loans up to £4,999 but only 7.90% on loans between £5,000 and £7,499. This means that a loan of £4,500 over five years will cost just under £105 per month, totalling £6,278 over the term.

“However, for the same money borrowers could get a loan of £5,200 – an additional £700 - at an APR of 7.90% and make the same monthly repayment over the same five year period. In fact, because the monthly repayments on the larger loan are very slightly less, the total amount to repay over the term is £8 less – leaving enough for a couple of drinks to celebrate the deal.”

The same applies to other lenders although the tiers at which the changes kick in vary, so it’s worth taking the time to compare which ones offer the most advantageous deal. For example, the trigger point for a lower rate with Liverpool Victoria is £9,000.

For a loan of £8,500 at 12.9% the monthly repayments would be £150, with a total repayable of £12,678 over seven years. However, for the same total repayment the loan could be bumped up to £9,900 – a whopping £1,400 extra.

Crossing the £9,000 threshold means lower APR of just 7.4% kicks in, bringing the total repayable to £12,616 - a saving of £62 on the smaller loan arrangement. Now, that is what you call a win-win situation.

“As with all financial decisions, it always pays to research the market first before grabbing the lowest headline rate,” says Brown. “After a year of exposés of the true size of the profits lenders generate from bank charges and PPI, it’s rewarding for consumers to be able to find a way of taking back a little something for themselves.”

* BBA/BSA data, April 2007