With loans, the devil is always in the detail

Borrowing money? Read the small print, and don't be swayed by 'free' cash offers

The cost of taking out a personal loan has been on the rise over the past month, as the credit crisis has forced banks to raise their interest rates. But consumers were finally given some respite from the spiralling cost of borrowing this week, as Barclays bullishly slashed its rates, claiming its financial strength meant it was much better positioned than its competitors to weather the current crisis.

Rates on Barclays loans have been cut by as much as 0.6 percentage points, down from a typical APR of 7.4 per cent to 6.8 per cent. The bank is also promising to pay any difference between monthly repayments – plus an extra £1 per month – for those who take out one of its loans and then go on to find a cheaper deal elsewhere. It also says it will pay £50 to those who consolidate their debts with Barclays.

However, customers might be advised to take the bank's PR spin with a generous pinch of salt. Tim Moss, head of loans at Moneysupermarket.com, says: "There are still around six providers with better rates, so Barclays has some work to do live up to its own publicity. Also, the £50 incentive to swap your loan may be tempting, but I'd advise caution before taking the plunge. Check the small print on any current loan agreement for early settlement penalties, which could well be more than £50."

If you are trying to bag the free £50, it's worth remembering that you'll have to apply in writing, fill out a special form and supply a written offer of the better deal you found – all of which is designed to make it more trouble than it's worth.

All in all, the move seems less about offering the most competitive rate to customers and more about boosting their reputation by capitalising on the current uncertainty surrounding other institutions. Still, Barclays' rate cut remains a positive move in a market where overall rates are increasing.

Lisa Taylor, analyst at Moneyfacts.co.uk, says around nine providers have recently hiked interest rates and, on some borrowing brackets, by up to a whopping 4 per cent: "With increasing uncertainty in the financial markets, rising levels of bad debt and a year of interest-rate rises putting pressure on our disposable incomes, it comes as no surprise to see lenders increasing their lending margins in what has become a far more risky environment to do business," she says.

Generally speaking, experts advise caution for those shopping around for the best unsecured loan deals and not just at this time of uncertainty. When searching the market, bear in mind the impact how much you want to borrow might have; typically, the smaller the amount you wish to borrow, the higher the rate providers might levy.

"Stay away from looking at typical rates," advises Ms Taylor. "The big posters in the branch windows might grab your attention, but remain cynical."

When you see the "typical APR" on marketing material this means that while at least 66 per cent of those who are offered a loan will get that rate, more than a third of applicants will be offered a higher rate.

And if you don't like the rate you're offered, and decide to apply elsewhere, it's worth remembering that making multiple applications for credit will bring down your credit rating.

To minimise this damage, Mr Moss suggests a three-pronged approach: " Check your credit records first with one of the credit reference agencies, such as Equifax or Experian; it only costs a few pounds and will give you an idea of what loan providers see when they check your score," he says. "There could be old linked addresses on there which may bring your score down. Make sure the electoral roll is up to date in this respect; which might help clean up your records. Finally, don't employ a scatter-gun approach to getting credit and send off lots of applications simultaneously."

As well as the risk of losing out by chasing eye-catching typical APR offers, loan applicants should be aware of other caveats and conditions, which can include loans only being available to either new or existing customers of a provider. Other providers will demand that applicants are homeowners – even if the loan is unsecured.

One other factor to watch out for when choosing a personal loan is payment protection insurance, which is designed to cover the cost of repaying your debt in the event of being out of work having either had an accident, becoming seriously ill, or being unemployed involuntarily.

While providers have been forced to clean up their act in terms of selling this protection more carefully, consumers need to stay vigilant and avoid shelling out for cover they don't want.

If you do want payment protection insurance, then go to an independent provider – not the company your loan is with. Stand-alone protection policies from companies such as www.paymentcare.co.uk are often a much cheaper option.

When you're buying a policy, watch out for the myriad of clauses and caveats which could invalidate any claim. These might include pre-existing medical conditions or being self-employed.

For those thinking they might be in need of a cash injection from a personal loan, the advice is, don't delay. Experts maintain that the overall trend is for rates to continue to go up, and those providers coming out with aggressively priced products are likely to have finite tranches of cash available to offer loans at such competitive rates.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Austen Lloyd: Company Secretary

    Excellent Package: Austen Lloyd: EAST ANGLIA - SENIOR SOLICITOR LEVEL ROLE** -...

    Citifocus Ltd: German Speaking Client Specialist

    £Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

    Citifocus Ltd: Performance & Risk Oversight

    £Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

    h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

    £90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game