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Aug 30, 2006
uSwitch has released the results of a
study which finds that more than 500,000 borrowers in the UK may be paying more interest on
their loan.
The research revealed that 540,000 people
who procured loans in the past 12 months for less than £5,000 have been paying
interest rates that rose up to 19.9%. uSwitch noted that some of the borrowers
are paying three times more than the usual APR advertised by the same lenders
while others may have been paying four times more than the base rate of the
Bank of England.
uSwitch blames this scenario to the
tiered rate system currently utilized by the lenders. As per this system, a
borrower needs to pay a lower interest rate for larger loans and higher interest
rate for smaller loans. uSwitch says this becomes a huge problem for borrowers,
who take a small loan amount and the repayment period extends up to five years.
“Loans are undoubtedly the most cost effective option where a customer is
looking to borrow large sums of money. However, with only a few exceptions the
rates remain highly uncompetitive on small loan amounts,” says Nick White, head
of personal finance at uSwitch.
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