The price of your loyalty

Wednesday, 7th Aug 2013
Categories: Finance, Newsletter


We all like to think that it pays to be loyal. But loyalty to a lender rarely makes financial sense.

Ever since exit fees were abolished, lenders have been looking for ways to retain their customers, and one of the common weapons in this battle has been loyalty discounts.

A loyalty discount can come in a variety of forms but often it is a rate discount that kicks in after a number of years. The purpose of the discount is essentially to discourage borrowers from switching lenders.

Even with a rate discount, borrowers are almost always better off shopping around for a better product that suits their needs. Comparison rates are a useful tool as they help evaluate the true cost of a loan over the term.

While a rate discount can be enticing, like honeymoon rates, there is often more to the story than meets the eye. Borrowers need to look beyond the clever marketing and read all of the conditions carefully before signing up to a loan. Loans with loyalty discounts may offer very limited features, which can end up costing the borrower over the long term.

Clearly, loyalty isn’t always rewarded, which is why you should revisit your loans every 2 years to ensure that you still have the best deal around that suits your circumstances. A good finance broker can do this for you, while also working out if you are genuinely better off switching when all costs are considered.