MoneySavingExpert fan saves almost £4,000 by switching loans – how you can do it too

A MONEYSAVINGEXPERT fan has saved almost £4,000 by switching to a cheaper loan to pay off her debt.

The fan, called Nicola, said she saved £3,788 by switching – and as a single mum, she said it was a "massive" amount for her to save.

She was featured in this week's MoneySavingExpert's weekly newsletter which outlined how others could potentially save thousands by swapping loans too.

If you have taken out a loan, it's worth researching whether you can take out a new, cheaper loan and use it to pay off your existing one.

This is because UK low interest rates are low – as much as 2.8%, MoneySavingExpert said – and lenders are competing to offer customers the best deals.

It means you can swap your loan that you might have taken out when rates were higher by taking out a new loan with lower interest repayments to pay off – which could save you money in the long-run.

First, you need to call your lender for a settlement fee – which is the amount of money you need to pay to clear your loan.

It could include an early settlement charge, which is a fee you need to pay because you're clearing your debt early – this could be as much as up to two months' worth of interest repayments.

Then, you can find a new loan with a cheaper rate to pay off your old loan – we've outlined the best rates below.

To check whether you're eligible for the loan you want, MoneySavingExpert has an eligibility calculator you can use to see if you can apply.

If you're eligible, you can check how much you could save by switching by using its loan switching calculator.

If you can save money on interest repayments by switching, its a good idea to apply for the new loan.

What are the best rates going?

When The Sun compared rates on Uswitch for three-year loans, Cahoot and M&S Bank are offering the cheapest rate at 2.8% APR for loans worth £7,500 and above.

Tesco Bank is offering the best rates on loans from £5,000 to £7,499 at 3.4%, while AA's rate for members is best for loans from £3,000 to £4,999 at 8.2%, otherwise it's the Post Office at 8.3%.

For loans smaller than this, Santander, Cahoot and Tesco's rate is cheapest at 13.5% – but MoneySavingExpert said a money transfer credit card loan is likely to be cheaper.

This allows you to switch your debt over to a 0% balance transfer card – which means you don't have to pay interest on the loan for a certain period of time.

What are the pros and cons of switching?

While switching can be great to save money repaying your debt, you should be aware of the costs of doing so. senior personal finance editor James Andrews said consolidating an existing debt into a cheaper loan can be a good way to save some money but Brits should be "careful how you go about it".

He said: "You will almost certainly have to pay an early repayment charge.

“Make sure you take this into account when trying to work out whether or not a new deal is cheaper.

"You’ll also need to take out a new loan that’s big enough to cover both the repayment cost of the old loan and any charges."

Moneyfacts finance expert Rachel Springall said to check your credit report too before applying for a new loan.

"Borrowers would be wise to check their credit report and make sure everything is correct and if there is any discrepancies, be sure to contact the credit reference agency," she said.

StepChange's Sue Anderson warned about consolidating your debts too.

"If you have a poor credit history you’re more likely to be offered consolidation loans with higher interest rates," she said.

"If this is the case, consolidation loans may not be the best option."

Here's how one savvy saver cleared her £32,000 debt – and it almost stopped her from buying a house.

Here's 20 money saving hacks that could make you hundreds of pounds richer.

It comes as one in five Brits have no idea how much debt they're in.

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