Money Insider: Personal loans - to pay less, just borrow more


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The Independent Online

If you're seeking finance to help with the cost of your home improvements or perhaps to change thefamily car, a personal loan from your bank or building society is often the first port of call.

 In most cases the banks and building societies tend to stagger or tier their interest rates depending on the amount borrowed, with the general rule being thelarger the loan, the lower the interest rate.

However, due to the way some providers price their loans, there are occasions where you can actually save money by borrowing slightly more. I know this sounds crazy, but if the amount you’re looking to borrow is close to the crossover point for the next tier, this is where it can sometimes be costeffective to borrow that little bit extra. For example, a lender may price its loans as follows:

  • £1,000-£2,950 at 17.9 per cent;
  • £3,000-£5,000 at 13.9 per cent;
  • £5,000-£7,450 at 9.9 per cent;
  • £7,500-£25,000 at 6.9 per cent.

Currently, a £7,000 loan over five years from Marks & Spencer Money is advertised at 12.9 per cent APR with repayments of £156.39 a month. But if you were to borrow an extra £500 the advertised rate drops to 6 per cent APR and the monthly repayments are lower at £144.43. So borrowing the additional £500 will actually save you £717.60 over the full 60-month term of the loan.

Similarly with AA Financial Services, the rate on a £7,500 loan is 4 per cent APRlower than a £7,000 loan, and as a result it works out £149.63 cheaper to borrow an additional £500 over five years. It’s also worth bearing in mind that the tier structure will vary from lender to lender, so make sure you check competitor rates, as you could significantly reduce your interest charges by borrowing the same amount elsewhere.

If you’re looking to borrow a smaller sum, you’re likely to be put off by the high interest rates. For example the average rate for a £3,000 loan is now just shy of 19.5 per cent APR. A cheaper alternative for amounts between £1,000 and £3,000 is to be smart with your plastic. You could make your purchase by credit card and then switch it to a 0 per cent balance transfer deal.

There are plenty of long-term deals available. In fact just last month Barclaycard launched a best buy interest-free balance transfer card, giving you 0 per cent for 22 months subject to a one-off transfer fee of 2.9 per cent. For those with a spotless credit history, there is a growing list of long-term interest-free promotional offers available, meaning there’s a good opportunity for you to repay your borrowing in full before the 0 per cent offer expires.

Andrew Hagger –

Reduce temptation to get savings habit

For some people, the hardest part of saving is actually getting started. They may have good intentions of saving some cash at the end of the month, but by the time they get there it’s often been spent elsewhere.

One of the best ways to build a savings pot is to set up a standing order so that the money is switched to your savings account the day after you get paid. That way it won’t be sitting around in your current account tempting you to spend it.

Many banks and building societies offer a Regular Saver account; the interest rates are pretty competitive but the terms and conditions can be quite strict. Most Regular Saver accounts don’t allow any withdrawals during the 12-month term of the account and you must also make a payment every month to qualify for the headline interest rate.

For instance if you’ve got a current account with First Direct, you can get a Regular Saver account paying 8 per cent AER while HSBC offers the same rate for its Premier, Advance and Passport account holders

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