Underhand tactics by the personal loans industry are costing consumers as much as £400 million every year according to a new report today by TSB Bank. The report findings suggest that:
- Consumers are being punished for shopping around – with providers making a hard mark on their credit file just for asking for a loan price or quote
- Many providers hide important product features from consumers – which could save, or cost them money
- Customers feel trapped with their loan provider – because they are prevented from switching to get a better deal
- Nearly two-thirds (61%) of providers perform unnecessary hard credit checks when a consumer looking for a personal loan just asks for a price or rate.
- Almost 80% of people say personal loan fees and charges should be clearer.
- Nearly seven in 10 (69%) people want switching their loan to get a better deal to be made simple and straightforward.
In TSB’s report titled Consumers Matter,TSB has identified three simple changes that will go a long way to making the loans market work for consumers:
- Consumers must be able to shop around for a good deal – with loans providers never making a hard mark on a consumer’s credit file until they choose to actually purchase.
- Providers must come clean on hidden product features upfront and be clear on how the loan works – to enable customers to find the right loan for their needs.
- The industry must stop locking in customers and create a new switching service – to free customers who feel trapped with their current provider.
Paul Pester, Chief Executive Officer for TSB, said “I was genuinely shocked and amazed to discover the underhand tactics employed by loans providers. So much so, we just had to blow the lid off this broken market. For any market to operate well, consumers have to be able to shop around, understand what they’re buying and be able to switch providers easily. What other industry penalises you just for shopping around to try and get a better deal?
If you take the time to shop around for a new car it normally pays off and you get a better deal. But if you shop around for a loan to buy that car, you often end up worse off. Your credit rating is hit and it could end up costing you dearly in extra interest. We estimate that consumers are losing out by as much as £400 million each year – £400 million which is going straight into the pockets of aggressive loans providers. Enough is enough: it’s time the industry comes clean on these costly underhand tactics.”
TSB is calling for change and consumers agree:
- 78% of people want personal loans providers to be more open about fees and charges.
- 65% want lenders to be clearer about how long it will take to receive funds.
- While 61% are calling for providers to be more transparent about the number of applicants who receive the advertised interest rate for a loan.
On top of this, many customers say they feel trapped and unable to switch to a better deal because there is no easy way of switching. Nearly seven in 10 (69%) of people believe this should change.
TSB’s Consumers Matter report can be viewed in full here.