WONGA may have been attracting criticism this week, but for those prepared to resist the lure of payday lenders it has rarely been a cheaper time to borrow money. Loans of pound(s)10,000 are now available for as little as 4.1 per cent, which is over a third cheaper than three years ago. Several lenders such as
If you have an existing, more expensive loan taken out a couple of years ago, it may even pay you to switch. But you may get a better deal from a credit union than a high street lender.
Its research indicates that there is a lack of awareness about switching. Among the people it surveyed, two-thirds said they did not know they were allowed to 'switch' a personal loan to another provider before the end of the loan term.
Under the Consumer Credit Directive, anyone with an unsecured loan has the option of early settlement, allowing the possibility of transferring from one provider to another. Early repayment charges are capped at two months' (58 days') interest. In the final year of a loan, early repayment penalties cannot exceed 0.5 per cent of the amount being repaid early and in the first year of a loan the early repayment penalty cannot exceed 1per cent of the amount being repaid.
However, switching may not be as straightforward as it sounds. The lowest interest rates are only available to those with the best credit records. Lenders are only obliged to give 51per cent of successful applicants the advertised rate.
Another factor is the size of the loan, as the outstanding balance on your loan may not qualify for the best rates - nearly all lenders charge higher rates of interest on lower amounts.
For a pound(s)5,000 loan, for example, Clydesdale, M&S and Sainsbury's charge between 5.4 per cent and 5.6 per cent. After that, rates increase in leaps and bounds. At Clydesdale, the rate jumps to 17.9 per cent for loans of between pound(s)3,000 and pound(s)5,000, while Sainsbury's charges 12.2 per cent for a pound(s)3,000 loan and 18.4 per cent for less.
To help people work out whether they could save money by moving their loan, Sainsbury provides a "switch and save" calculator on its website.
However, the stiff credit scoring applied by high street lenders can also mean that potential borrowers are either turned down or offered a loan at a higher rate of interest than that which has been advertised. Relatively small misdemeanours, such as late payment of a credit card bill, can blot your credit rating.
You may get a better reception from a credit union. Their rates are not as low for larger loans as the cheapest on the high street, but they can be cheaper for smaller amounts. They are also more flexible and you can request a loan even if you are not an existing member.
Scotwest, for example, will consider requests for loans from non- members providing they subsequently become members with a pound(s)1 contribution. It charges 6.5 per cent for loans of pound(s)10,000 to pound(s)20,000, 7.5 per cent for amounts of pound(s)5,000 to pound(s)9,999 and 12.7 per cent for loans of pound(s)501 to pound(s)4,999.
Scotwest's chief executive
"We check borrowers' credit records through
Scotwest also has no early repayment penalties if people want to pay off their loan quicker than originally agreed.
Earlier this year,
WONGA may have been attracting criticism this week, but for those prepared to resist the lure of payday lenders it has rarely been a cheaper time to borrow money.
Loans of pound(s)10,000 are now available for as little as 4.1 per cent, which is over a third cheaper than three years ago. Several lenders such as