Compare Loans
If you set out to compare loans by typing the word 'loans' into a search engine, be prepared to spend a few months online. There are 29,900,000 pages in English and Spanish for the term 'loans'.
That doesn't count the sponsored links, though they are presumably included somewhere in the 29,900,000. On the first page of the most popular search engine, those links have titles that include: Bad Credit Loans, Loans, Personal Loans, secured and Unsecured Loans Do You Need a Loan? Miss out on the Dot Com Boom? (though what that has to do with loans beats us), £250,000 Cash Guaranteed, Loans (again), and Loans for all Credit Types.
Most of the directory entries promote loans from various sources, but few help the hapless searcher to compare loans. You have to go to the second page before you come to an entry that promises "objective information and in-depth articles on consumer bank products such as mortgages, credit cards, CDs, auto loans". But it simply leads to another directory. Maybe the information is there to compare loans, but life is too short to wade through everything else to find out.
To compare loans seems like a logical thing to do. Taking out a loan is, after all, a purchase of sorts, and it can be one that will cost tens of thousands of pounds over the years. Yet it is surprising how many people fail to shop around. To do so takes a little work, but with the Internet it takes less now than it used to.
More useful was a trip to an online mortgage calculator. Surprisingly in such a competitive marketplace, there was a two percent difference between the lowest rate and the rate two down from the highest. (The highest rate was almost an additional 2% greater.) On a £100,000 mortgage over 25 years, the difference in monthly payments was £123.56, or a whopping £37,067.74 over the term of the loan.
Not only that, but the companies demanding higher interest rates also charged the highest lender fees. The survey covered 63 lenders in the Harrogate area.
Why would some people be prepared to pay £37,000 more than others for the same service? Is it simply that they failed to compare loans? If so, why? Did they think it too much work? Were they just delighted to get a loan at any price? Who knows what motivates individuals? But £123 a month isn't chicken feed.
While the mortgage business is competitive, there are reasons why Mortgage Company A might change more than Mortgage Company B one week and less the next. And that's why it is important to compare rates. To mortgage lenders, money is a commodity. Their business is buying and selling money. What they pay for it and what they sell it for is the interest rate.
Each institution also has to balance its books. Our brief survey looked for a mortgage with a fixed initial term of at least five years. The lenders demanding the highest interest from borrowers may have had very little capital available for a guaranteed five-year term. The money available from most depositors that week may have been for periods shorter than five years.
So how do they balance the books? They simply charge more for the types of loans they have more difficulty in covering, deliberately trying to avoid that type of business. However, if you are too lazy to check what is available elsewhere, they will happily take your money. They will make the loan more expensive, but they will not turn you down if you have good credit and can afford the repayments.
Always compare loans to make sure you are not caught in the lender's credit squeeze.
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