These days we all have a bit of a trust issue when it comes to banks. As bank managers and investors take millions of pounds in bonuses while the economy falls to its knees, the public perception of banks is less than flattering. And unfortunately, the recent news that banks have been conning current account customers into taking out expensive bad credit loans will not do anything to help the banks’ public image.
It has recently been revealed that when customers take out current accounts with a specific bank, they’re often assured that they have exclusive access to bargain deals on personal loans. As a result, many customers snap up the opportunity to kill two birds with one stone, and get their hands on a “bargain” personal loan at the same time as opening a current account.
However, the majority of these so-called bargain loans actually have much higher interest rates than the other personal loans that are available on the market. And, as the contracts are often full of jargon and small print, many people fail to spot that they’ve been duped until it’s too late.
The main reason for these personal loans being taken out, as stated above, is convenience. For many people, sorting out finances is a stressful and unpleasant experience, so if their bank offers an opportunity to set up a loan quickly and effectively, they’ll make the most of it.
What’s more, many people assume that taking out a loan with their current bank will mean they get some kind of special deal available exclusively to existing customers, and as a result they don’t bother to check the interest and other specifications of the loan.
Recently, personal loans have been the major focus of lots of banks and lenders, and the interest rate for personal loans of between £7,500 and £15,000, or even up to £25,000, is at its lowest point in almost seven years. This means that even a little bit of research and shopping around can leave you quids in as opposed to taking out a personal loan with your current account.
For example, currently, Sainsbury’s is currently offering an interest rate of 5.8% on loans of between £7,500 and £15,000 that are paid off within three years. However, the majority of lenders that have crunched their interest rates currently offer personal loans with an interest rate of around 5.9 or 6.0%. This sounds impressive as it is, but when you compare it to rates like 9.9% that existing current account holders were offered as “bargain”, it becomes even more so.
So what does this mean in financial terms? Well, if you were to take out a loan of £7,500 with a lender offering 5.9% interest, over a term of five years, you would end up paying a total of £8,646 over the term, meaning you’d pay £1,146 in interest.
However, if you were to take out the same loan, for the same amount of time, with a lender offering a “bargain” rate of 9.9%, you’d end up paying £893 more than if you’d gone for a rate of 5.9%.
Of course, some of the “exclusive” deals on personal loans offered to existing customers may be beneficial – you may be entitled to certain privileges, or receive vouchers for your favourite shops. However, as always, it is recommended that you do your research, and read the small print carefully, before signing anything.