Beware Of The Cashback Loan

Banking and Borrowing

Updated on 16 December 2008 | 0 Comments

Earlier this year, a new type of loan was introduced which offers cashback on repayment.. Are they a good idea?

Over the weekend, during a friend's birthday party, I was chatting to a chap who seemed to be obsessed with money. Now, I'm often accused of being obsessed with money - it is my job to write about it, after all - but this guy was one of those 'Know-It-All' types and he really took the biscuit!

Anyway, he was banging on about how he had just taken out a 3-year personal loan that would pay him cashback of 25% of the interest at the end of the term. He was suggesting to a fellow party-goer that she do the same.

Well, I've heard of this new type of cashback personal loan and I couldn't resist getting the details! When I asked him, he couldn't remember what interest rate he was paying but he did recall that in order to qualify for the cashback he was not allowed to repay the loan early and that he'd had to take out the lender's payment protection insurance policy.

If you're a regular reader of The Motley Fool, you'll be groaning already! The interest rate is your basic starting point when looking for a personal loan as we pointed out only last week.

Around seven in ten loans are also repaid early so he was restricting himself from being able to do just that should he find himself in a position to do so. And as for buying the payment protection insurance - well, at that point I really started sniggering. The guy was self-employed and wouldn't qualify for a pay-out if he couldn't keep up the repayments anyway!

I have to admit that for the first time ever, I didn't even bother to try and explain why he'd made a mistake (although I did have a chat later with his friend to warn her off). But then, according to him, Jennifer Anniston should have given up her career to have children with Brad Pitt because that was what he wanted and, anyway, she's so rich she doesn't need to work. Apparently, it's all her fault that Brad ran off with that Angelina Jolie woman!

Still, I always think that clever dicks get what they deserve!

> Compare loans here at the Fool.

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