Many borrowers don't realise they can save by switching their loan for a better deal.
Borrowers who took out a personal loan a few years ago could be paying more than they need to, according to new research.
In a survey of 2,039 borrowers, Sainsbury's Bank found that 65% didn't know they could 'switch' their personal loan to another provider mid-term. 18% of respondents thought that you were forbidden from switching.
This common misconception could mean borrowers with an existing loan are missing out on big savings with the competitive record low rates now available.
Average personal loan rates have taken a tumble over the last few years, as lenders battle to attract borrowers.
Three years ago, a borrower that took out £10,000 over five years could get a best buy rate of 6.7%.
But today rates on the same level of borrowing are as low as 4.1%.
The difference in repayments is just under £12 a month or £144 a year. Over the lifetime of the loan that's a saving of over £700.
Sainsbury's Bank found that 5% of borrowers are currently paying off a personal loan they took out more than three years ago, while those with outstanding personal loans taken out within the past five years still have to pay off an average of £7,020.
How to switch loans
Switching personal loan provider isn't the same as switching current account or energy provider.
The new provider of your loan won't automatically deal with your old loan - that's up to you. So you will need to take responsibility for paying off the balance of your existing loan with the money from your new loan.
However, before applying for a new loan to replace your old one you should watch out for charges that could wipe out any savings.
The Consumer Credit Directive means that all unsecured personal loans have to come with the option of early settlement, with early repayment charges capped at two months' interest.
In the first year of a loan the early repayment charge cannot be more than 1% of the amount being repaid, while in the final year of the loan it cannot be more than 0.5% of the amount being repaid early.
You should double check what you'll be charged for settling up early and compare this to any savings a new loan could provide before going ahead.
Finding a better deal
You can find a better loan to switch to using our personal loan comparison centre.
At the moment the best deals are on medium-sized borrowing, but rates are also competitive on small
and large loans.
To give you a taste of what's on offer I have selected the cheapest loans available for borrowing £10,000 over five years.
At the moment Hitachi offers the market leading rate of 4.1%
But Sainsbury's Bank has a Price Promise Guarantee on its Standard personal loans, which is offering to beat a borrower's best 'like-for-like' offer, so you could be able to bag a rate of 4.0%.
However, be careful of applying for too many loans as this won't look good on your credit record.