With around 10 million people using comparison websites in the UK each year (Moneywise), it is clear that companies like Go Compare and MoneySupermarket play a big role when customers choose things like car insurance, personal loans and credit cards.
But with so many users simply tempted to click on the first the result that shows up, we thought we would investigate the best ways to use comparison sites and things that you as the consumer should be doing to find the best loan or quote.
We spoke to someone from Quiddi Compare, which is one of the UK’s leading comparison sites. They talked us through their own comparison table and the things to look out for in order to compare loans at Quiddi Compare. Their spokesman explained that using the Representative APR is the easiest way to compare the cost of a loan or a credit card. The figure advertised is available to only 51% of those that apply and based on your credit rating or the length of the loan, the Representative APR you are quoted may be different.
It is important to the think about your reasons for the loan and to compare the length of the product and how this will suit your needs. Taking their payday loan page as an example, there are some loans for few weeks and some that last up to 6 months. In this case, if you think you need the loan for a long period of time, it will be cheaper to take out a loan for 6 months and repay early since some lenders charge no early repayment fees. This is likely to be far cheaper than taking out 6 individual monthly loans. So comparing the length of the loan and the repayment example provided will allow customers to save money on their loans.
A further thing to consider is that the maximum amount usually shown on a comparison table is only available to repeat customers. First-time customers are typically allowed to borrow a fraction of the maximum amount but once you have proven that you can repay your loan on time, you may be eligible to borrow more in the future.
With all the positives of saving money through comparison sites, one must remember that they are profit-making businesses and the quality may be compromised. For example, customers should be aware of sponsored links on price comparison websites. In this instance, the website will be featuring specific companies based on a large commission offered and not based on their price competitiveness.
In a similar way, comparison site users must be conscience about filling in their details on some comparison sites. For some sites, they will ask you for details and give you a list of suitable suggestions – this is typically known as a ‘smart search.’ But in some cases, your details are processed through a broker who will take your contact details and sell them onto lots of different parties. This may cause the user to be bombarded with phone calls, emails and text messages from other broker companies without any loan being offered.
In addition, it is important to note that the cheapest product featured may not always be the cheapest in reality. Whilst the APR or interest rate may be low, there may be a delay to receive the funds or added costs for fast payment. It is therefore essential to click through to the website and have a look around the site to ensure no hidden fees or charges.
A final point is that a standard comparison site does not include all the companies available in the market but only the ones that that website have partnered with. Direct Line notoriously doesn’t feature on price comparison sites. It may be a good idea to look at other companies when looking for car insurance or home insurance and then comparing their rates on a price comparison table in order to get a full picture of the options available.
With regulators closely watching the activity of comparison websites and how they feature their products, one can expect the future of price comparison sites to offer the cheapest product at the top of their list to consumers whether it is a payday loan, guarantor loan or logbook loan. Comparison sites will be encouraged to offer the best product for the consumer and not necessarily the product that generates the most revenue for the company. Other factors other than price to be taken into consideration include the approval rate, so customers will know how likely it is that their application for a loan or credit card will be successful.