Credit, Collections & Insolvency News
More than half a million (590,000) Brits holding at least one kind of interest-bearing debt are paying more than they need to by not moving to a better deal, according to new research by TSB. Almost 5 million British adults owe between £7,500 and £25,000, and TSB calculates that more than half a million of these higher-volume debtors would be eligible to move to a personal loan with a much lower rate of interest – and therefore pay significantly less for their debt.
At a time when national personal borrowing has rocketed 11% over the last 12 months, the cost of staying on their current credit agreements equates to £55 million a month or £664 million a year in ‘overpayment’ by indebted Brits. On average, these Brits are paying three times more interest than they could be if they shopped around. While 13% of consumer credit borrowers are simply unaware of their options or where to go for more information, half (49.9%) admit to being victims of the ‘Ostrich Effect’, preferring to bury their heads in the sand and actively avoid thinking about money.
However, this behaviour leaves ‘Ostriches’ paying more than other indebted Brits – paying on average £200 more a year. Their reluctance to engage with their finances means that they typically accrue more debt than other Brits in the red. Coupled with the fact they are less likely to address their debts or shop around for a better deal, they pay considerably higher interest rates than others (14% APR v 10% APR).
The research also reveals ‘Pessimist’ debtors, who refrain from shopping around for better deals due to a belief that they won’t be able to find a loan with rates lower than those they are currently paying. Despite more than half (35%) of Brits in debt identifying as ‘Pessimists’ when it comes to their debts, they stand just as much chance of being eligible for a cheaper loan as other debtors.
Nick Smith, Head of Loans at TSB said “There are times when we all need a little extra financial support whether it’s to clear more expensive debts, pay bills, make some much needed home improvements or replace an old car. The consumer credit industry offers people a helping hand when they need it most but it is important that people know all of the options available to them to find the best deal for their needs and be able to borrow well.
“However, our research shows that people shouldn’t stop shopping around for better deals even after they have committed to borrow. We urge people to continue to take just 30 minutes out on a regular basis to review their debts as they may be one of the half a million Brits eligible to refinance to a cheaper deal, and pay less for their debts, which will help them become debt free sooner.
“Burying your head in the sand about debt won’t make it go away – and it can end up costing a lot more than you bargained for. We encourage borrowers to understand how much they are paying and for how long so they can consider their options. There is plenty of information available online and on money advice websites as well as specialist charities to help people review their finances and seek out better options.”
