MoneySavingExpert fan saves almost £ 4,000 by switching loans
A MONEYSAVINGEXPERT fan saved almost £ 4,000 by opting for a cheaper loan to pay off his debt.
The fan, called Nicola, said she saved £ 3,788 by switching – and as a single mom she said it was a ‘massive’ amount to save.
She featured in this week’s MoneySavingExpert weekly newsletter, which described how others could potentially save thousands of people by exchanging loans as well.
If you have taken out a loan, it is worth researching if you can take out a new loan for less and use it to pay off your existing one.
Indeed, low interest rates in the UK are low – up to 2.8%, MoneySavingExpert said – and lenders compete with each other to give customers the best deals.
This means that you can trade in your loan that you might have taken out when rates were higher by taking out a new loan with lower interest payments to pay back, which could save you money in the long run.
First, you need to call your lender to get a settlement fee – which is the amount of money you have to pay to clear your loan.
This could include an early settlement fee, which is a charge you have to pay because you are resolving your debt early – this can go up to two months of interest repayment.
Then you can find a new loan with a cheaper rate to pay off your old loan – we’ve outlined the best rates below.
To check if you are eligible for the loan you want, MoneySavingExpert has an eligibility calculator that you can use to see if you can apply.
If you are eligible, you can check how much you could save by switching loans using its loan change calculator.
If you can save money on interest payments by swapping, it’s a good idea to apply for the new loan.
What are the best rates?
When The Sun compared rates on Uswitch for three-year loans, Cahoot and M&S Bank offered the cheapest rate at 2.8% APR for loans worth £ 7,500 and over.
Tesco Bank offers the best rates on loans from £ 5,000 to £ 7,499 at 3.4%, while the AA rate for members is best for loans from £ 3,000 to £ 4,999 at 8, 2%, otherwise it’s 8.3% mail.
For loans below that, the Santander, Cahoot and Tesco rate is the cheapest at 13.5% – but MoneySavingExpert said a money transfer credit card loan would likely be cheaper.
This allows you to transfer your debt to a 0% balance transfer card, which means you don’t have to pay interest on the loan for a certain period.
However, be aware that the highest rates are only available to people with very good credit scores.
If your rating isn’t that great, chances are you won’t get as good a deal as this – be sure to do the math to see if it’s worth changing.
You can also check other comparison websites like Comparethemarket and MoneySuperMarket to compare rates as well.
What are the advantages and disadvantages of the change?
While the change can be great for saving money by paying off your debt, you should be aware of the costs involved.
Money.co.uk personal finance editor James Andrews said consolidating existing debt into a cheaper loan can be a good way to save money, but Brits should ” pay attention to the way you go about it “.
He said: “You will almost certainly have to pay a prepayment charge.
“Make sure you take this into account when trying to determine whether a new deal is cheaper or not.
“You will also need to take out a new loan that is large enough to cover both the cost of repaying the old loan and any charges.”
Moneyfacts financial expert Rachel Springall said to also check your credit report before applying for a new loan.
“Borrowers would be wise to check their credit report and make sure everything is correct and if there are any discrepancies, be sure to contact the credit reference agency,” she said.
Sue Anderson of StepChange also cautioned against consolidating your debts.
“If you have a bad credit history, you are more likely to be offered consolidation loans with higher interest rates,” she said.
“If this is the case, consolidation loans may not be the best option.
Here’s how a savvy saver forgave her £ 32,000 debt – and it almost kept her from buying a home.
Here are 20 money-saving tips that could make you hundreds of pounds richer.
This is because one in five Britons has no idea how much debt they have.