The language of loans

Despite the cuddly, cartoon ads you see and hear everywhere for loans, borrowing money is deadly serious.  And despite what they say in the ads, they are not easy to understand. 

The top line may be straightforward – “borrow £100, pay back £139 in 30 days’ time” or “Apply now for our low 4.9% APR representative* personal loan” – but the detail of all loans are incredibly complex (that asterisk is always a warning sign of trouble ahead...).

Of course just because something is complicated, it doesn’t mean you shouldn’t do it.  We all need credit and we all use it.  But we also need to make sure we understand exactly what we are getting into.

People looking for a loan have to contend with two separate and equally dangerous hurdles. On the one hand, the seductive marketing of the short term, high interest loan companies makes it all sound so easy and encourages us to apply for loans as if we were just borrowing change for a parking meter.

On the other, the explanations of different kinds of loans and their fees, charges and default penalties are often impenetrable and almost impossible to compare.

Many banks do make efforts to help cut a path through all this.  Sainsbury’s Bank, for example, has just added a guide to switching loans to their website, which sets out the key areas to look at when you are comparing loans or thinking about switching from one provider to another.

The guide is nine pages long, which just shows what a complicated area this is.

Now Sue Lewis, chair of the independent Financial Services Consumer Panel which advises the Financial Conduct Authority (FCA), has come out strongly with the view that there are more problems with the credit industry in this country than just payday lending.  She pointed to the equally high costs that can be incurred with some overdrafts and credit cards – but she focused particularly on the fact that financial services are couched in language which is so difficult to understand. 

As she told the Independent on Sunday: "Banks aren't at all interested in consumers."

Which says it all, really.

For the Sainsbury's Bank guide to switching loans, click here.

For the Sue Lewis interview, click here.