Best loans ‘not just about interest rates’

Those seeking to take out an unsecured loan should look beyond just the headline interest cost, it has been advised.

Defaqto has noted many consumers will be planning to take out loans to pay off the debt they have built up over Christmas and stated that one notable feature is that while the average rate for a loan of £10,000 has decreased, the amount that must be paid for borrowing £5,000 has risen.

Compared with a year ago, the typical annual purchase rate for £10,000 repaid over 60 months is down to 9.2 per cent from 9.8 per cent, while a £5,000 figure over 36 months is up from 12.6 per cent to 13.2 per cent.

But, Defaqto's insight analyst for banking David Black noted, there are other issues to consider.

These include whether the rate is fixed or flexible, with the former applying in 94 per cent of cases, how much is charged in interest for an early settlement, whether the start can be deferred and the level of arrangement fee – which can very from nothing to £200.

Taking out a consolidation loan may be a very useful way to pay off credit card debt, not least after Christmas when many other people might be adding to the amount they owe on plastic.

Evidence of such a development was produced in the Post Office Consumer Credit Report, published last week.

It revealed that two million people will spend more on their cards this month than they did in January 2011 and 36 per cent will rely on plastic for everyday purchases and essential bills.

Posted by Paul Thacker