The real cost of borrowing is measured in fear

Most consumers are unaware of the real cost of borrowing.  To get a clear look, ask your bank to calculate a personal loan, or mortgage, with a couple of missed payments, or late payments.  Ask them to calculate the cost of paying out early, or paying down the loan. 

There is no way for the average person to find the hidden, or steal charges, in the average loan contract. The only way is to ask the bank’s agent, or the loan broker, to give you a spread sheet with a few different scenarios calculated – and don’t be surprised if the numbers do not add up.

If a car dealer, a real estate agent, or a stockbroker dealt so underhandedly and unscrupulously with their customers, they would be in jail and faced with hefty fines.

Picture Financial has found this discrepancy among the transparency levels when buying financial products and other consumer products, like vehicles, clothing, and even food. 

The main problem?  Simply put, it is consumer’s fear of haggling.  Desperation, fear of appearing foolish, and ignorance cost consumers millions each year.

"We are a nation of increasingly savvy shoppers," said Julia Dallimore, Picture Financial marketing director.

"However, our research shows that this doesn’t extend to financial services and many people could be missing out on better deals on their finances as a result of this knowledge gap."

Moneysupermarket.com reports that UK consumers would save thousands if they took a second look at their current finances.  A typical family may save £5,000 a year by reassessing their financial portfolio.  If you don’t feel up to it, then pop over to Credit Action, or another debt charity. Their friendly, sympathetic, and knowledgeable staff are there to help you save money.

Stuart Glendinning, managing director at moneysupermarket.com, said: "Many people look to make home improvements over the bank holiday weekends and it can end up a costly exercise.

"However, sorting out their finances first means they can make some significant savings which could really boost renovation plans."

"The market for personal loan business is incredibly competitive, allowing consumers to reap the benefits by means of lower rates," said Ms Slade.

"So with a little time spent to secure the best finance deal, you could have paid for the extra upgrades such as a climate pack or spoiler."

This means that consumers can walk away from the Big Five, opting to save money by working with small financial firms and brokers.  It also means that many people who will petition for bankruptcy this year could not only have stayed afloat, but reduced the amount of their debt.

This bites deep into the traditional myth that banks are there to take care of us. The days when our parents were submissive serfs to the banks are gone.  Today’s banks answer to their profit margins and the board of directors. They enjoy the unchecked luxury of behaving like loan sharks, without facing any legal backlash for their actions.

The good news is, we are changing.  At one time it may have been socially unacceptable to balk the big banks, talk about debt, and admit that you were not as wealthy as your neighbour, but those times are changing.

"Positive" loan habits are increasing, in part due to charity organizations and government efforts to educate consumers.

The fastest growing financial products are the debt consolidation loans.  Of course, there are still may people who borrow a consolidation loan and then don’t consolidate. But on the whole, the scheme is working.

Research from MoneyExpert.com reveals that six million people consolidated their debts with a personal loan arrangement in the last three years.

This is a good trend.  Anything that increases and forces the IVA industry to sweat a little is a good thing.  While IVAs are a good thing – in their place – they shouldn’t be used by most people.

However, fear steps back in.  Statistics show that most people are more comfortable with letting someone else handle their debt problems than contacting their creditors and creating a Do-It-Yourself debt management solution.  Even though a DIY can save thousands of pounds over an IVA, consumers are just too afraid of confrontation.

The first response from the lender will always be a resounding, ‘no.’ This doesn’t mean an actual ‘no.’ It just means that they don’t want to deal with the problem.  A debt charity can fight the creditors on your behalf.  They are quite experienced and adept at turning a final ‘no’ into a reasonable debt repayment plan.

Most consumers should just stop borrowing. Cut up the store cards and credit cards. Use your holiday savings fund to pay down last year’s Christmas spending, and tighten your belt. 

The Bank of England stated that 53% of UK consumers could repay their debts, minus mortgage, within a year.  The first step is to overcome the fear of people in suits and force the loan agents to treat you like a human instead of a number.