Loans 'sans frontière', but will you get a knockout deal?

The EU wants us to be able to search Europe-wide for the best rates. Kate Hughes asks if there is any advantage to Britons in going continental
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The Independent Online

The EU Consumer Credit Directive, which passed its second reading in the European Parliament last week, could make it easier for consumers to shop around for loans across the EU. In theory, in a couple of years' time, you should be able to pick and choose products from the best of Europe's lenders.

For example, British consumers could call a French or German bank and arrange a loan, having confidence that the terms and conditions on offer are the same across the EU. They may even be able to pick up a bargain rate. The directive has to be approved by the EU's Council of Ministers before it passes into law but this is expected to be a formality and it should be up and running by 2010.

In essence, the directive means that information on loan terms and conditions will become standardised across the EU. It should become easier, too, to compare how much each loan actually costs overall, and to cancel a loan agreement, provided you do so within 14 days of taking it out.

Borrowers irked by the penalties imposed for repaying a loan early will be cheered to know that the directive will impose a cap of 1 per cent of the total sum owed at the time the repayment is made.

The Lib Dem MEP Diana Wallis says the directive will boost competition and benefit consumers: "We need to stimulate the EU's market in financial services, while on the other hand ensuring that people make sensible and informed choices, and that all the information is available to them in order to do so. This directive can assist our consumers in obtaining credit and doing so competitively."

But the directive applies only to loans of between €200 (around £150) and €75,000, which means Europe's huge mortgage market is not covered. Borrowers will have to rely on consumer credit laws in their own country for protection.

Some MEPs are scathing about the expertise of those making the decisions on how the market should be opened up. "I do not regard it as the business of politicians to come between a consumer and a lender," says Ukip member Godfrey Bloom (pictured).

Other critics cast doubt on whether the directive will actually have that much of an effect on consumer behaviour.

Edward Simpson, head of public affairs for the UK's Finance and Leasing Association, a loan industry body, does not believe banks in this country will be prepared to lend to people from abroad and thinks that consumers would rather stick to lenders clo-ser to home. "We aren't convinced that this is demand- led, and the British government was not exactly in the vanguard for this directive," he says, adding that the original proposal was based on Belgian lending procedure.

"The UK has the strongest consumer protection policies in place, and I have doubts whether a British consumer will shop around and finally decide to come away with, say, a Greek loan over a British one.

"As a lender," adds Mr Simpson, "I would know about the applicant here in the UK because I can do a reliable background check on them. I cannot imagine that lenders would simply hand over a product to an unknown foreigner."

Lisa Taylor from the online price-comparison service Moneyfacts.co.uk points out that the interest rates available are no better on the other side of the Channel than in the UK. Research shows that the Portuguese pay the most for a loan, at an average annual percentage rate (APR) of 12 per cent, while Finnish consumers pay the least, at around 6 per cent. The UK's best buys match up well here.

"Someone borrowing £10,000 over five years can get an APR of 6.5 per cent from Sainsbury's Bank," says Ms Taylor.

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