Personal loan holders could be paying too much

Tue, 31 Jan 2006

Personal loan holders are losing out by being charged early redemption penalties of up to two months' interest if they repay their loan early, new research shows.

The five per cent of personal loan holders who are hoping to switch providers this year are being urged by financial website MoneyExpert and research company Defaqto to carefully consider how a switch could affect their finances.

Too many personal loan holders focus only on the cheapest interest rate when they consider a personal loan and forget to look for lenders' pitfalls and restrictions, warns the chief executive of the price comparison website, Sean Gardner.

"Many people are oblivious to the finer details of the product," he says, adding that this is because of an emphasis on interest rates in the current personal loans marketplace.

He warns that the 5.38 million people who say they do not fully understand personal loans might end up paying unnecessary penalties and early redemption charges.

Chris Johnston, marketing manager at Defaqto, says that this "highlights the need for better education about financial products".

The research by these financial companies has prompted them to launch an online guide that aims to help those shopping around for the best deal to navigate through potential pitfalls in small print.

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