Borrowers have been advised to do their research when it comes to taking out a loan.

According to a study by Defaqto, borrowing as little as an extra pound could result in differences of around eight per cent in interest rates.

The financial research company reports that interest rates generally differ between tiers - the size of the loan - and that higher rates are charged on lower tiers.

David Black, principal consultant of banking at the firm, advised borrowers to do their research before choosing a loan, as they could save a "considerable amount" by opting for a higher-tiered sum.

He added: "Obviously choosing a longer period to repay a loan does exaggerate the differences and so the length of the loan is another factor to be considered."

Debt advisory firm Debt Help UK recently announced that a consolidation loan can be an effective way of making borrowings more affordable.

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