IFRSA survey recommends shopping around for loans

Consumers can save several hundred euro by shopping around for the right personal loan, it was revealed today.

The advice came as the Irish Financial Services Regulatory Authority published its first independent personal loans cost survey.

It compares the costs of borrowing over different terms and is based on the main lenders in the Irish market.

The cost survey reveals that on a €10,000 fixed rate five-year loan, the difference between the least and most expensive loan amounts to over €800. On a one-year €2,000 variable rate loan, consumers can save over €250.

Consumer Director, Mary O'Dea said: "This survey demonstrates the value of taking the time to examine closely the costs of personal loans. Remember you do not have to take a loan out with your current financial institution or take up a pre-approved loan offer if you can get better value or service elsewhere. To compare the cost of loans, you should look at the total cost of credit, which shows the total amount you pay to the lender to borrow the money."

She added: "Regardless of the type of loan you are offered, money can be saved by repaying it over the shortest possible term, as the amount of interest to be paid increases with the term of the loan. A €5,000 fixed rate loan will cost you almost €300 more if you repay it over three years rather than two years."

A number of factors influence the cost of a personal loan. While some lenders offer lower rates, not all consumers will be offered loans by all lenders in the market.

Personal credit history can be accessed by all lenders through the Irish Credit Bureau and will be taken into account by the lender in deciding whether a loan will be offered to the applicant.

The majority of institutions apply a standard interest rate to the loan for all customers. However, some lenders may also take an individual's credit history into account to decide what interest rate will be applied to the loan.

Consumers should also ask about additional charges, such as set-up fees and check if there are additional costs if they want to pay the loan off early.

Payment protection on a personal loan typically covers some repayments in certain circumstances, such as redundancy or illness. Such policies also usually clear the loan in the event of death.

Payment protection on a €10,000 loan over five years in the survey ranges from €1,000 to over €2,000.

Mary O'Dea said: "People should be aware that lenders often include payment protection in the quote you get for your loan. Always ask how much the loan will cost without payment protection. Carefully consider whether you might need this insurance for your personal loan as payment protection costs can be considerable."

The Financial Services Regulator has produced a free Independent Guide to Personal Loans and Credit, which has information for both new and regular borrowers and covers a range of lending products, designed for short, medium and long-term needs.

Copies of the personal loans cost survey and guide to personal loans and credit are available from the Financial Services Regulator by phoning the consumer help-line on lo-call 1890 77 77 77, by visiting www.itsyourmoney.ie, or by calling into the Consumer Information Centre at College Green, Dublin 2.