Should you get a loan with your baked beans?

The rates may be enticing at the grocers turned banks but consumers need to take more care than they would buying beans, says Lindsay Cook

We all know it's consumer blood that's spilt in the supermarket aisles in the grocery price wars, but we also need to be on our guard when confronted with financial products such as personal loans at the checkouts.

Supermarket-branded loans offering rates as low as 4.5 per cent are now as much part of the product range as baked beans and fish fingers. Just like their comestible cousins, they get the razzle-dazzle marketing. Glossy brochures are currently advertising the lowest-ever rates for personal loans – "exclusively" for customers.

Unlike a ready meal, however, the shelf life of a personal loan can be as long as five years, which will give you plenty of time to repent if you are waylaid by some fancy marketing or rushed into making a decision.

While I wouldn't suggest these high-street brands would encourage you buy something less than good value, some customers may not get round to reading the small print after being attracted by the very big figures advertising very attractive interest rates.

The lowest-possible loan rate is proclaimed in large letters and bright colours. Just what you might actually end up being charged may be in print sizes usually reserved for the chemical additives in cheap fizzy drinks.

Sainsbury's, Tesco and Marks & Spencer are all offering personal loans at record low "representative rates". In reality, this means only around 50 per cent of applicants will be offered loans at those rates; the rest will pay more.

Many offers are pitched in a "buy now while stocks last" tone to encourage snap decisions. For example, customers have until 3pm on 31 January to apply for Sainsbury's loan deal. At Tesco the cut-off is midnight on 5 February – and if you pay an extra £50, you can have the loan documents delivered by a courier. Of course, it will be some time after the deadlines that customers actually find out what the loan rate will be.

In our new book Money Fight Club we stress how customers have to be streetwise if they are going to get a good deal. While the big print is similar for different offers, the terms and conditions vary; get your magnifying glass out and check before you apply.

Don't be tempted to apply for several of the offers to see which one seems best; you may damage your credit record as each lender carries out a check. Sainsbury's literature did point this out.

The longer the term, the more you pay. However, if you discover that you can settle up early, you could still be left with a nasty taste in your mouth. Lenders have setting-up costs, so, for example, while Sainsbury's tells applicants that if they pay off the loan early then they "may get a reduction in the interest", that doesn't mean they will only have to pay interest for the time they have the loan.

And it's not just people with poor credit histories who may find it hard to get the best deals. Those who have not borrowed for a while may lack the credit rating they need, even if they have paid off their mortgage and have a healthy pension. We regularly hear from people who have been caught out because their credit profile is a little stale. It's worth checking yours now.

Here are some of the offers. First, Sainsbury's 4.5 per cent loans are for Nectar cardholders, aged 18 to 80, so long as they repay the debt within three years of taking out the loan. They must also have swiped their card in a store or online in the previous six months.

M&S is offering its 4.7 per cent loans to people with an income of at least £10,000 who are over 30 – or homeowners over 18. You must already hold a card, current account or loan with M&S, or pay 4.8 per cent. But the loans are "subject to lending criteria" and "different rates may apply".

Tesco offers loans to over -18s "subject to status" at 4.8 per cent. It says the actual rate will depend on the amount "you wish to borrow and individual circumstances". It also offers a repayment break, which means no payments need to be made for three months, but interest will be charged.

Don't just go loan shopping when you're food shopping. There are other deals to be had. For example, the Halifax has launched a Clarity loan. Its interest rate is higher at an APR of 5.9 per cent for current account customers borrowing £7,000 to £15,000. But it guarantees that the maximum amount customers will pay each month on loans of £7,500 over five years is £199. The bank also allows customers to pay off their loans early for free.

Money Fight Club by Anne Caborn and Lindsay Cook is published by Harriman House at £11.99. Details at www.moneyfightclub.com.

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