HSBC wants borrowers to stay faithful

If you have money owing on a personal loan, you may be keen to pay it off early to get out of the red.

But last week, HSBC burst on to the market with a new proposition encouraging borrowers to do just the opposite. The deal promises to "reward" customers who stay put for the full term of their personal loan with cashback - amounting to a quarter of the total interest paid.

This "repayment reward" is available to anyone taking out a new personal loan with HSBC between 1 July and 30 September, regardless of how much is borrowed or the loan term.

For example, someone borrowing £10,000 over 36 months at an annual percentage rate (APR) of 6.9 would receive a refund of £266.82. This would in effect reduce the overall interest charged to 5.3 per cent.

HSBC says its offer will reward loyal customers by "reducing the overall cost of borrowing".

Samantha Owens from financial analyst Moneyfacts says this is the first deal of its kind, and a clear move by the bank to try to retain customers. It is also, she adds, in some part due to the abolition last year of the Rule of 78, by which often hefty charges were levied on customers who cleared their debts before the end of the original term.

"Since then, providers have been able to charge only a maximum of two months' interest," she says.

While she welcomes any move to "give something back" to the customer, Ms Owens urges borrowers to shop around for a good rate.

"You have to weigh up whether the end-of-term rebate [on the HSBC deal] is a benefit worth having, as you are only getting back 25 per cent of the interest paid - not 25 per cent of the entire loan."

This is a view shared by Nick White from uSwitch. com, the price-comparison service, who points out: "Given that findings show seven in 10 borrowers repay their loan early, this incentive is immaterial."

A customer who took out this loan and then repaid it early, would, explains Mr White, not only lose out on the cashback but be hit with 59 days' interest. The only way to avoid this is to carry on paying the relatively high rate of 6.9 per cent until the end of the loan period.

Mr White urges consumers to consider an alternative product offering a lower standard rate and lower early-settlement fees, which won't leave them locked into a deal.

At present, there are 15 loans with interest below 6 per cent, including those from MoneyBack Bank and Direct Line, which are topping the tables with an APR of 5.6, and GE Money and Northern Rock (5.7 APR).

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Digital Optimisation Executive - Marketing

    £30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

    Recruitment Genius: Financial Reporting Manager

    £70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

    Recruitment Genius: Payments Operations Assistant

    £23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

    Recruitment Genius: Telephone Debt Negotiator

    £13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

    Day In a Page

    Sepp Blatter resignation: The beginning of Fifa's long road to reform?

    Does Blatter's departure mean Fifa will automatically clean up its act?

    Don't bet on it, says Tom Peck
    Charles Kennedy: The baby of the House who grew into a Lib Dem giant

    The baby of the House who grew into a Lib Dem giant

    Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
    Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

    The harrowing testament of a five-year-old victim of Syria's endless civil war

    Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
    The future of songwriting: How streaming is changing everything we know about making music

    The future of songwriting

    How streaming is changing everything we know about making music
    William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

    Recognition at last

    Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
    Beating obesity: The new pacemaker which helps over-eaters

    Beating obesity

    The new pacemaker which helps over-eaters
    9 best women's festival waterproofs

    Ready for rain: 9 best women's festival waterproofs

    These are the macs to keep your denim dry and your hair frizz-free(ish)
    On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

    On your feet!

    Spending half the day standing 'reduces risk of heart attacks and cancer'
    Liverpool close in on Milner signing

    Liverpool close in on Milner signing

    Reds baulk at Christian Benteke £32.5m release clause
    With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

    The big NHS question

    Why are there so few new GPs when so many want to study medicine?
    Big knickers are back: Thongs ain't what they used to be

    Thongs ain't what they used to be

    Big knickers are back
    Thurston Moore interview

    Thurston Moore interview

    On living in London, Sonic Youth and musical memoirs
    In full bloom

    In full bloom

    Floral print womenswear
    From leading man to Elephant Man, Bradley Cooper is terrific

    From leading man to Elephant Man

    Bradley Cooper is terrific
    In this the person to restore our trust in the banks?

    In this the person to restore our trust in the banks?

    Dame Colette Bowe - interview