The more you borrow, the more it pays to shop around. We show how choosing the wrong loan can damage your finances.
When you choose a personal loan, be sure to shop around to find the ideal loan to suit you. If you don't, you could end up throwing hundreds -- even thousands -- of pounds down the drain!
Obviously, the more than you need to borrow, the more important finding a great deal becomes. Let me give you an example: let's say that you need to borrow a hefty sum to pay for a major purchase, such as a new car, home improvements or a wedding.
For the sake of argument, let's say that you want to borrow £15,000 over five years. According to the Fool's search engine, which is powered by independent financial analyst Moneyfacts, these are the five cheapest unsecured personal loans in this category (unsecured loans aren't secured against your home in the way that a mortgage is):
To borrow £15,000 over five years (without rip-off payment protection insurance)
Lender | Total amount | Typical |
|---|---|---|
Masterloan | 17,214.60 | 5.7 |
| Alliance & Leicester | 17,293.80 | 5.9 |
| Moneyback Bank | 17,293.80 | 5.9 |
Northern Bank (NI) | 17,293.80 | 5.9 |
17,372.40 | 6.1 |
As you can see, borrowing £15,000 over sixty months would mean paying a total of £2,215 to £2,372 in interest. Not too bad, then! Now let's take a look at the other end of the spectrum: the five most expensive loans at this level from mainstream lenders. Here they are:
Lender | Total amount | Typical |
|---|---|---|
Black Horse | 18,754.20 | 8.9 |
Royal Bank of Scotland | 18,690.00 | 9.4 |
Intelligent Finance | 18,536.40 | 8.4 |
| NatWest | 18,489.60 | 8.9 |
First Direct | 18,489.60 | 8.9 |
At the Don't Buy end of the scale, your interest bill comes to between £3,490 and £3,754, or roughly 50% more than the interest charged by our Best Buys. Indeed, the difference between the best and worst loans is around £1,540, which is more than a tenth of the amount that you originally borrowed, and enough to pay for a decent family holiday!
So, my advice to you is simple: don't even think about borrowing without first reading my twelve tips on how to find the perfect personal loan. Otherwise, you're sure to fall into one of the numerous traps which await unwary borrowers!
More: Use the Fool to find the very best unsecured loans! | Choosing The Right Loan