New research by comparethemarket.com has found that one in five UK adults do not know the difference between a personal loan and payday loan.
Comparethemarket.com says that payday loans have come under intense criticism for charging very high-interest rates, often with a representative APR of 1,266%, and many lenders have closed down. By contrast, personal loans, when managed responsibly, can be a very cost-efficient means to borrow money for one off larger purchases, compared to other debt products. However, over one-quarter of UK adults overestimate the cost of taking out a personal loan and a further 20% believe personal loans are too expensive to pay back.
John Crossley, Director of Money at comparethemarket.com said “Personal loans are a sensible solution for many people, especially if you are looking to borrow a larger amount of money for a one-off purchase or project. For borrowers who want the discipline of making a fixed monthly repayment, personal loans can be preferable to a credit card where you have the flexibility to pay what you like every month, as long as it is above the minimum payment. In many cases, personal loans also have lower interest rates than credit cards.”
“When applying for any sort of credit, it’s important to take the time to understand how likely you are to be accepted. Repeated credit checks can damage your credit score but completing a soft check online will give you an idea of how much you can responsibly borrow without putting a black mark against your name.”