Many borrow to combine debts

Tue, 12 Apr 2005

New research shows that debt consolidation is likely to be the main reason why people take out a personal loan.

Sainsbury's Bank found that nearly one in three loans (30 per cent) taken out this year will be to collect together and cover debts.

In total, the amount borrowed by UK consumers for this purpose will weigh in at estimated £11.9 billion.

However the loans manager at Sainsbury's Bank, Rachel Brereton warned: "When taking out a personal loan, you need to ensure that you shop around to find a competitive rate"

She added: "The difference in rates on a loan of £10,000 could be as high as eight per cent APR which over five years could mean around £2,180 in excess interest repayments."

After debt consolidation, the second most popular reason for taking out a loan in 2005 will be to purchase cars, suggesting that the consumer boom is still going strong.

Some 1.24 million personal loans worth around £9.92 billion will be used to buy them.

The third most popular reason will be for home improvements, accounting for £6.35 billion or 16 per cent of all loans this year.

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