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Choice in any market is a good thing, a sign of health and vitality and something to be enjoyed. However, choice means that at some point you are going to have to make a decision and to do that you must be aware of the market you are entering. This is all stating the obvious but is very important in the loan market where choice is abundant and mistakes are costly and often irreversible

The first important point to recognise is the division between a secured and unsecured loan. Secured loans have much lower interest rates but are often secured on people’s homes. They carry the risk that failure to repay will lead to eviction and homelessness as the house is repossessed by the lender. On the other hand unsecured loans are seen as high risk for the lender and are therefore more expensive. It is important to decide whether you value risk or cost more highly before you make the decision to have a secured or unsecured loan.

With a market as cluttered as the personal loan market in the UK it is essential to compare as many deals as possible to find not just the lowest rate, but the deal that suits your specific circumstances best. Many UK supermarkets have recently entered the loan market and have some good introductory deals, although these are beginning to dry up as the global financial situation tightens.

Most loans are for a fixed period of time and borrowers usually have to pay a penalty charge if they repay the full amount before that period of time has elapsed. Flexible loans without a fixed time period are available but at higher rates of interest. If you think you could repay a loan early it is usually worth keeping the money to avoid a penalty charge, repaying at the arranged time and keeping the excess interest earned.

Another reason to check the small print on any loan contract is that different lenders have different ways to calculate their APR’s (annual percentage rates). This can effect comparisons and result in a worse deal for the consumer. It is especially important to note that comparisons should only ever be made between APR’s calculated in similar ways. Monthly rates and special deals are designed to make loans appear more attractive and less expensive than they really are.

The last point is that the borrower should always be aware of the total amount to be repaid. With interest rates varying between 7% and 20% this can make a big difference, any mistake in choosing a loan is going to be compounded over time and could mean borrowers are vastly out of pocket.

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UK banks have been granted an extension to the time they can put off customer complaints about excessive overdraft charges prompting outrage from consumer groups. Both sides are waiting for the outcome of a test case in the high court that could see a flood of claims as people demand the banks return the money taken from their accounts as charges for unauthorised overdrafts or bounced cheques.

A spokesman for the Office of Fair Trading said “the test case between the OFT and the firms is a crucial step in establishing certainty about the legality and fairness of unauthorised overdraft charges, when this certainty has been established complaints about unauthorised overdraft charges can be dealt with consistently and fairly.”

Banks have been making billions of pounds from the charges and have consequently been reluctant to change the disputed policies, despite growing numbers of claims being successfully settled in the small claims courts before the moratorium caused by the test case.

The point about which the whole case revolves is whether or not the charges are a fair fee for a service provided, as the banks claim, or are an unfair and illegal penalty charge as claimed by the OFT. The cost to the bank of an unauthorised overdraft or bounced cheque is usually around two pounds yet the customer is charged up to thirty pounds. There are further issues regarding the terms and conditions and whether or not they are liable to mislead customers.

“At the moment consumers pay for banking through surprises and through stealth,” said the head of the OFT, John Fingleton. “They don’t see what they pay - very often they pay when an unexpected event happens like an unauthorised unexpected overdraft,” he added.

Despite the moratorium on complaints being settled while the high court case is settled the consumer group Which is urging customers to continue making complaints. “Even though the banks won’t process the complaint, they will still have to acknowledge it. And if the OFT wins, as we hope it will, that means your complaint is already in the system and so you should be paid out more quickly.”