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Loan tarts could save £1.25bn

Brits could save £830 in interest each by swapping personal loans to the best products on the market.

Research by uSwitch.com reveals a consumer with an £8,000 loan over five years could save £166 a year on interest by switching from the market average rate of 10.9 per cent APR to the current best buy of 6.5 per cent APR.

While 60 per cent of credit cards customers switch providers the same is not true in the loans market.

Some 29.6 per cent of people do not switch loans mid-term as they think the savings are too small. A further six per cent think it is impossible to move loans from one provider to another.

But this is not the case. A quarter of lenders have no penalties for early repayments and two-thirds charge only one month's interest – around £39.

Mike Naylor, personal finance expert at uSwitch, said: "In such a volatile unsecured personal loan market, five years is a long time to sick with the same provider as rates fluctuate constantly.

"For example, in the second half of 2007, more than 30 providers increased loan rates by around one per cent APR."

"However, since the last base rate cut at the beginning of December, eight major lenders including Alliance & Leicester, Moneyback, Lloyds, Barclays and Sainsbury’s have already cut their rates by up to 5.5 per cent APR."

Interest rates on personal loans are also expected to fall further in the coming months – following expected base rate cuts from the Bank of England.

"With more base rate decreases predicted over the next 12 months it’s possible we may see other providers following this example and offer more competitive deals than those available last year," Mr Naylor said.

However, the loan market has become increasingly hard to meander through of late – with lenders increasingly operating 'personal pricing' – so rates offered may reflect your financial background and risk.

"While they still can, consumers should give loan providers the wake-up call they need and move their business elsewhere if better deals become available," Mr Naylor said.

"While consumers continue to display this level of apathy, loan providers will rub their hands together with glee and continue to profit from the not so tarty loan customers."

Tips for switching loans:

• Contact your current lender to find out how much paying your loan off early will cost.
• Compare this to the cost of the new loan, taking into account the cost of the settlement figure.
• Avoid lenders that offer personal pricing, and so do not advertise rates for comparison.
• Don’t stick with your current account provider. Online rates can be lower than those offered in-branch.