Last updated 13:44, Saturday, 29 March 2008

Consumers could save hundreds of pounds by switching personal loans to get a better deal, research has shown.

Someone with an average-sized loan of £8,000 being repaid over five years could save £166 a year by changing from a typical rate of 10.9 per cent to a best buy deal of 6.5 per cent, according to comparison website uSwitch.com.

The group said the actual cost of switching loan provider mid-term is low, with one in four companies not charging any penalties, and 67 per cent charging one month’s interest.

Despite this, 30 per cent of people said they do not think it is worth switching loan provider mid term as the savings are too small, while 20 per cent think the move is too much trouble.

About six per cent of those questioned think it is impossible to change loans part of the way through and another 14 per cent said they will not consider switching.

Mike Naylor, personal finance expert at uSwitch.com, said: “In such a volatile unsecured personal loan market, five years is a long time to stick with the same provider as rates fluctuate constantly.”

He said more than 30 providers increased their loan rates by about one per cent in the second half of 2007. Since the Bank of England cut interest rates in December, eight lenders have reduced their rates, in one case by 5.5 per cent.

He added that with more base rate cuts predicted during the coming year, it is possible that other lenders will reduce their rates and offer more competitive deals than were available last year.

uSwitch said the days of being able to shop around for best-buy loan rates are numbered, with seven of the big providers now operating so-called personal pricing, under which people are offered different rates according to their circumstances.

Mr Naylor said: “While they still can, consumers should give loan providers the wake-up call they need and move their business elsewhere if better deals become available.”