Most people fail to shop around for debt consolidation

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Most people fail to shop around for debt consolidation

The Office of Fair Trading has found that most people do not shop around when they take out a debt consolidation loan.

The OFT discovered that even though it can save money - two thirds of borrowers who consolidated debts got details from just one provider.

They also found that many people are unaware of the options they have available, like negotiating with creditors themselves, or getting help from free debt counselling services. This was especially true for those in financial distress.

On top of this the borrowers mainly fail to think hard enough about factors like the length the loan, and the total cost of repayments.

However, the government body also flagged problems with the selling of debt products. Things like lenders forcing existing customers to take out consolidation loans to deal with debt problems, and lenders focusing the speed of a decision and no "awkward questions". The OFT said this was hardly consistent with responsible lending.

These - along with a number of apparent breaches of credit advertising rules - will be investigated further by the OFT.

"We intend to look at the scope for further guidance and where lenders or brokers are in breach of the regulations, we will not hesitate to take enforcement action," said Jonathan May, director of the markets and policy initiatives division of the OFT.

The government agency estimates that, in 2002, £32 billion of unsecured lending and £8.8 billion of secured personal lending were used for debt Consolidation. A big jump form 1999's £18.4 billion of unsecured lending and £2.4 billion of secured personal lending in 1999.

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