Personal loans have never been more popular. (£209bn compared to £196bn one year ago). It is not unusual to encounter offers of loans when watching TV, listening to the radio or even commuting to work.
When searching to secure a personal loan, consumers have a wealth of resources available to determine the best deal. The decision will often be based on the interest rate charged on the loan.
However, UK consumers are paying millions of pounds more, each year, than they initially expected. There is a growth in the gap between the advertised interest rate and the rate they are actually charged.
Mind the gap
The average advertised interest rate on a personal loan for £9000 is between 2.8% and 4.9%.
In reality, the actual repayment rate is on average 7.3%.
This adds up to a total of an extra £204M to be paid by consumers.
This may seem unfair, but current rules state that only 51% of consumers have to be offered the advertised rate for loan companies to be permitted to use it.
The Financial Conduct Authority has proposed changes to the current rules, which it hopes will improve transparency. However, these changes are not due for implementation in near future.
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This article is written by our legal content writer James Chalkley (LLB. LLM.)