Jan 30 2006
More than 672,000 consumers were hit by penalty fees on their personal loans for paying back the money they borrowed ahead of time, according to new research.
A study by MoneyExpert and Defaqto found that people were losing out by having to pay early redemption penalties of up to two months interest when trying to pay back their loan amount early.
On top of this, the research found that while around five per cent of borrowers (2.2 million people) intend to switch their loan in 2006, many risk forking out again unless they fully understand how their loan operates.
Over 5.38 million people in the UK currently claim that they do not completely understand personal loans.
Sean Gardner, MoneyExpert spokesman, said: "Too many of us are guilty of focussing purely on the cheapest interest rate when we take out a loan and forgetting to look for the pitfalls and restrictions imposed by the lender.
"There has been such an emphasis on rate in the current loans marketplace that many people are oblivious to the finer details of the product. This leads to many people paying penalty charges for early redemption charges unnecessarily."
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