Consumers not getting best loan rates - IFSRA

Half of consumers do not shop around for the best loan rates and are potentially throwing away thousands of euro, the Irish Financial Services Regulatory Authority (IFSRA) said yesterday.

On a typical €10,000 personal loan to be repaid over a term of five years, IFSRA said a consumer could save more than €1,100 by shopping around.

On the publication of its new independent consumer guide to personal loans and credit, the financial watchdog said many borrowers were concentrating on the monthly repayment amount when deciding to take out a loan, when they should be comparing the total cost of the credit.

Some consumers are choosing loans on the basis of convenience, for example signing up to credit deals offered by garages and electrical goods shops, according to IFSRA.

There is evidence that others feel "safer" with the same lender they have always dealt with, or believe they might not get a loan elsewhere.

Consumers might also think that there was little difference in the monthly repayments offered by different lenders, but these differences added up over time, IFSRA said.

Ms Mary O'Dea, consumer director of IFSRA, said each type of credit available was suited to a particular purpose.

"For example, if you take out a loan to pay for your annual holiday, you don't want to be still paying it back when the time for next year's holiday arrives," she said.

"It is often tempting to take a loan out over a longer term than necessary, as this reduces the monthly repayments, but the longer the term, the more the loan will end up costing you."

On a loan of €10,000 where the annual percentage rate of interest (APR) is 8.5 per cent, the cost of credit (the total paid less the amount borrowed) will be €1,312 if the loan is repaid over three years.

If it is repaid over five years, the cost of credit is €2,219 - more than €900 more.

The guide also cautions against the "buy now, pay later" culture of frivolous borrowing.

According to IFSRA, the first question consumers should ask themselves when thinking about getting into debt is "do I really need a loan?"

The financial regulator warns that "waiting until you can afford what you want is painless compared with finding yourself trapped with a loan you cannot afford to repay".

A recent survey by IIB Bank/ESRI showed that a third of Irish consumers had regular unsecured (non-mortgage) debt which is not paid off at the end of each month.

The average outstanding balance among the 3,000 consumers questioned stood at €5,100.

The IFSRA guide includes information on the system of credit ratings and a budget planner designed to help borrowers work out how much they can afford to repay each month.

It also lists "dos and don'ts" for people intending to borrow using credit cards, personal loans, hire purchase agreements, mortgage top-ups and overdrafts.

Copies of the guide are available on IFSRA's website, www.itsyourmoney.ie, at its information centre at College Green in Dublin or by phoning the consumer helpline on lo-call 1890 777 777.

Copies will also be available in local libraries, citizen information centres and Money Advice and Budgeting Service (MABS) offices.