Greedy lenders are cutting loan and card costs in a bid to entice borrowers struggling with their finances to take more credit.
A range of personal loan and card offers have hit the high street as banks and building societies try to tempt customers to take out more credit.
Royal Bank of Scotland and NatWest have a new 13-month 0% balance transfer card with a fee of 1% of the balance switched on to the card.
The banks also offer a shorter six month 0% rate for a purchase card.
Independent financial monitor Defaqto has also disclosed that lenders are urging customers to borrow more by raising interest rates on low value loans, while cutting those for borrowers who want more cash.
Their figures show the rates for an average £5,000 personal loan over 36 months is 13.2% compared to 12.6% a year ago, while those for a £10,000 loan over 60 months have gone down from 9.8% to 9.2%.
Consolidating debts in to a single loan is only a good idea if the term remains the same and the interest rates are reduced – if the term is extended or the rate increases, then the likelihood is the same borrowing is costing more to repay.
Switching unsecured debts to a loan secured against a home also increases the borrower’s risk of repossession.
Many borrowers may also find significant fees are charged for switching loans that do not reduce the overall costs.
Before taking out a debt consolidation loan, speak to an independent debt adviser.
A bank or building society adviser will only discuss the lender’s own products and will not explain any better options.
In some cases, a debt consolidation loan is not a good idea for a borrower who should be looking at a long term debt solution rather than a quick fix.
Shopping around for debt consolidation loans or 0% credit cards can also damage a borrower’s credit rating, as most lenders carry out a credit check that stays on the file and lowers the borrower’s credit rating each time an application is made.
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