Loans, Mortgages and Credit Cards. Best Buy tables can be misleading!
For providers of loans, mortgages and credit cards, getting to the top of the Best Buy” tables is like hitting the jackpot. The customers can’t get through the door fast enough!
Customers can find the Best Buy tables in press and magazine articles or on certain price comparison web sites - they’re like manner from heaven for those of us wanting to emulate scrooge! Indeed, for finance companies, top positions can make all the difference between success or failure for a new product. So it should come as no surprise to learn that enterprising finance executives are not behind the door when it comes to devising tricks to find a way to the top of the tables.
Take Alliance & Leicester’s Moneyback Loan for instance. This loan product recently hit the top of the Best Buy tables for a £5,000, 3 year loan in a subscription only magazine for finance professionals called Moneyfacts. The interest rate was 5.5%. But the marketing boys at Alliance & Leicester had engineered the product to win top place for a £5,000 loan. The product was structured so that unless a client wanted exactly £5,000, the amount the client ended up paying increased and effectively pushed the product well down in the comparison tables. Not was all it seemed!
In the mortgage market, the Northern Rock Building Society provides another good example. It has a table topping position for it’s two year fixed rate mortgage. But look closer and you’ll find that they’ll only lend on 80% of the property’s value and it has a 1.5% arrangement fee. This means that it only makes sense for those wanting a mortgage of over £175,000 and effectively rules out most first time buyers.
Now take credit cards. Which is the better deal – Cahoots card charging an attractive 11.9% or HSBC’s at 13.9%? The answer is that it depends on how you use your card! Cahoot charge interest right up to the date they receive payment whereas HSBC only charge interest to the date the bill is produced. The result is that if you regularly paid off your bill, HSBC would be cheaper!!
So what is the lesson to be learnt? Lenders are in the market to make profit and you can bet that if on the surface, a loan, mortgage or credit card looks really cheap, there’s going to be a catch somewhere – some angle through which the lender gets more money back.
In our view there’s no such thing as “A Best in Market”. What’s best for you will depend on your personal circumstances and how you want to operate the finance. So by all means look at the “Best Buy” tables but do so with a pinch of scepticism and a healthy regard for the small print! The problem is that most people are not sufficiently experienced to sort out the small print – so our advice is that when considering a significant financial purchase, use a broker. This does not necessarily mean that you’ll have a brokerage fee to pay, many of the brokers work off the commission they receive from the lenders, and their experience could save you a packet.
All the best financial brokers have web sites so our advice is stay online and let your fingers do the searching!
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