Could you cut your loan repayments by switching?
Some 65% of Brits don't realise they can switch a personal loan to another provider before the end of the loan term, research has revealed.
Almost a fifth (18%) of them wrongly believed doing so was not allowed, while the rest simply were not aware of the rules, according to Sainsbury's Bank.
Only 17% correctly knew that they were able to switch.
The supermarket bank found that 5% of British consumers are currently paying off a personal loan they took out more than three years ago and that personal loan rates have fallen significantly since that time.
Sainsbury's Bank said the best loan rate available three years ago was 6.7%, which compares to around 4.2%. On a loan of £10,000 taken out over five years, the difference in the rate would bring about a saving of just under £11 a month.
The bank's research also found that those with outstanding personal loans taken out within the past five years, on average still have to pay off £7,020.
Switching personal loan provider isn't the same as switching a current account or energy supplier. There's no onus on the new provider to help. Instead, you simply take out a new loan and once the money comes through, you use it to pay off the outstanding balance on the first loan.
But before you apply for a new personal loan, check the payment conditions of the existing one because charges may apply that could wipe out any savings.
In line with the Consumer Credit Directive, all unsecured loans come with the option of early settlement, with early repayment charges usually capped at two months interest.
In the first year of a loan the early repayment penalty cannot exceed 1% of the amount being repaid and in the final year of a loan, it cannot be more than 0.5% of the amount being repaid early.
Simon Ranson, head of banking at Sainsbury's Bank, said: "When you consider the savings people could be making it's alarming that the vast majority of people do not know or think you cannot 'switch' a personal loan to another provider during the term of the loan.
He added: "With so much competition in the market, those who took out personal loans a few years ago could potentially save money by taking out a new loan now, even when you take into account early repayment charges. Those thinking of switching should make sure they enquire about their early repayment charges first."
To find the best unsecured personal loan rates on the market, visit moneywise.co.uk/compare.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.