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Banking and Finance  » Moneynet Cautions Borrowers Not To Be Seduced By Attractive APR

Moneynet Cautions Borrowers Not To Be Seduced By Attractive APR

Article:

* Low APRs draw in borrowers - but PPI pushes up repayments

* Read the small print, cautions Moneynet

Relying solely on advertised APR rates to choose the best deal

on a loan could mislead borrowers into picking the most

expensive product on the market rather than the cheapest, warns

online financial data comparison site Moneynet. ( http://www.moneynet.co.uk )

"Consumers are led to believe that the cheapest loan is the one

with the lowest APR," said Moneynet Chief Executive Richard

Brown. "But this is far from the truth - borrowers should be

aware that a loan package does not always do what it says on the

tin."

The reason for this is that the APR simply reflects the cost of

the credit without taking into account the cost of other add-ons

such as payment protection insurance and early repayment

penalties - and it's these extras that earn the loan provider

their commission.

"This enables them to advertise what looks like a competitive

rate to attract customers," said Brown. "Then once the applicant

is convinced they have found a great deal the commission-hungry

provider will make every attempt to sell them PPI, thus

increasing their margin via the back door."

Moneynet's message is clear - borrowers should look beyond the

APR and ensure they get all the facts before buying.

"No-one likes reading the small print but not bothering can mean

a loan ends up costing a huge amount more than expected," added

Brown.

For example, a loan from the RAC of £7,000 over five years at

6.5% will cost a reasonable £137.93 per month whilst

Nationwide's 6.7% deal will cost £136.97 - not much to choose

between the two - but add on the cost of PPI and the RAC monthly

repayments leap to a whopping £189.24 compared to Nationwide's

£158.46. This means that the borrower pays a massive £1,846

extra with the RAC over the term of the agreement.

Payment protection insurance can be a lifesaver for those

unfortunate enough to need it but can also be a very expensive

white elephant if it doesn't pay out. Consumers must understand

exactly what they are covered for and the terms of the cover if

they are to avoid paying for something which is of no benefit.

Early repayment penalties can also be a sting in the tail. It's

natural to only consider the present when applying for a loan -

the money is needed now - but should it be possible in the

future to pay the loan off early there will be no saving to be

made if the small print demands a penalty.

"These ploys are not confined to a few small-time lenders," said

Brown. "Hiding behind the friendly faces of many of the high

street institutions is the grim reality of commission-greedy

providers lining their own pockets."

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About moneynet

Moneynet.co.uk is the

UK's most established personal finance research and data

website. The company offers consumers a wide range of low cost

financial products: from mortgages and personal loans; to car,

home and medical insurance; credit cards; savings accounts and

best-buy fixed rate products. Moneynet.co.uk is an ethical,

impartial and comprehensive source of consumer finance

information, covering the whole of the personal finance sector.

Moneynet was founded in 1997 by Chief Executive Richard Brown

to simplify the personal finance market and provide consumers

with impartial and interactive information on financial products

and services.

Press and consumer enquiries:

Moneynet

Contact: Richard Brown, Chief Executive

Telephone: 0208 313 9030

E-mail: online@moneynet.co.uk

Web: http://www.moneynet.co.uk

About the author:

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Contact: Rachel Lane Telephone: 0131 561 2251 E-mail:

rachel@bigmouthmedia.com Web: http://www.bigmouthmedia.com