Consumers are potentially receiving black marks against their credit history simply for shopping around for loans, according to a report.
The Consumers Matter report by TSB Bank claims “underhand tactics” by the personal loan industry are costing Britons as much as £400 million every year.
TSB said many providers hide important product features from consumers that could save, or cost, them money.
It also found that consumers feel trapped with their loan provider because they are prevented from switching to get a better deal.
The bank said its study revealed almost two-thirds of providers (61%) perform unnecessary hard credit checks on consumers who ask for a price or rate on a personal loan.
It warned that over time, hard credit checks can be seen as a potential indicator of risk, resulting in a customer having to pay a higher price for borrowing and increasing the probability that a loan application will be declined.
A survey for the report found almost 80% of people think personal loan fees and charges should be clearer, while 69% want switching their loan to get a better deal to be made simple.
The report recommends that consumers must be able to shop around for a good deal without providers making a hard mark on their credit file until they choose to buy the product.
It also said providers must “come clean” on hidden product features to be clear about how the loan works to allow customers to choose the right product.
The industry must stop locking in customers and create a new switching service among providers, it said.
TSB chief executive Paul Pester said: “I was genuinely shocked and amazed to discover the underhand tactics employed by loans providers. So much so, we just had to blow the lid off this broken market.
“For any market to operate well, consumers have to be able to shop around, understand what they’re buying and be able to switch providers easily. What other industry penalises you just for shopping around to try and get a better deal?
“We estimate that consumers are losing out by as much as £400 million each year, £400 million which is going straight into the pockets of aggressive loans providers. It’s time the industry comes clean on these costly underhand tactics.”
:: YouGov surveyed 1,011 people who have taken out an unsecured loan in the past five years in January in February.