How do comparison sites work – and how can their advice help you to save money?
The internet is full of comparison sites, with many of the best-known sites being household names. As a relatively new service, comparison sites have made a phenomenal impact on UK consumers, with most of us using them from time to time, usually when we are looking for a personal finance product.
How many of us really know how these sites work though? They are free to use, so how do they make money? And do they always offer impartial advice? Here, we take a closer look at comparison sites and offer some hints and tips on how best to use these online tools to find brilliant deals for financial product consumers.
What are comparison sites?
Comparison sites offer information about businesses that provide financial products to consumers. The main function of the sites is to show constantly updated tables featuring the products, deals and rates from various providers, which should help consumers find products that suit their needs at the lowest cost.
Some comparison sites will show only the lowest cost, or ‘best deals’ available for each product displayed in ‘league tables’. Others will simply show you a range of providers alongside details of the information you need to make a comparison.
Alongside the comparison information itself, you’ll also find a huge amount of useful information, from ‘how to’ guides, to FAQs. Reading this information before you start researching the best deals, can provide you with a better understanding of the product you are buying and what to prioritise when comparing providers.
How do comparison sites make money?
Comparison sites work by making money through affiliate deals. They charge a small fee to providers, who then pay the fee either to feature on the site, or when a user clicks through to their site from the comparison site, for example. Others may pay a fee or a percentage if a consumer signs up as a result of clicking through.
These affiliate deals work for both the providers featured and the comparison sites themselves. The more consumers that use a particular comparison site, the greater number will click through and sign up with the featured providers, so it is a highly competitive industry in its own right.
Why might you want to use a dedicated website to help make a comparison between providers?
If you are looking for a loan, or for a new mortgage that costs you less, or want to know which bank account offers the best interest rates on your balance, one of the quickest ways to compare different providers is through a comparison site.
For example, if you want to take out a short-term loan, a comparison site will show you a number of lenders, including information on how much they will generally lend and the length of time you have to repay. The sites will also usually include the interest rate payable on the loan, enabling you to easily compare each lender’s offering. Some comparison sites will also show other information, such as extra fees and lending criteria.
Often, sites will ask for some information from you, which they might use to provide you with more suitable recommendations. Although this can be helpful, it can also lead to further marketing being aimed at you, as well as the partial removal of your own autonomy over the research process.
Which money products can you research using a comparison website?
Comparison sites offer a varied range of products. Most commonly, you can access comparison information for the following types of financial products from comparison sites, but not every site will feature all of these:
- Current accounts
- Savings accounts
- Car insurance
- Life insurance
- Home insurance
- Contents insurance
- Utility providers
- Credit cards
How do you get the most from using price comparison sites?
Use more than one comparison site to gather more data
When you start your research, it’s vital that you look at more than one comparison site in order to gain a fair view of the market. This is because not all sites will feature every provider. Comparison sites need to secure affiliate deals with providers in order to work with them and feature them on their site.
If a site fails to secure these deals, they will not show up on their league tables, despite possibly offering a better deal. This is why it’s so important to refer to a few different tables to find out which providers are truly offering the best value for money.
Make sure you don’t just go for the cheapest – find out which product is right for you
When using comparison sites, it can be tempting to opt for the best deal, at the top of the table. However, this isn’t always going to be the best option for you. Take the time to read around the choices you have to make and the differences between the products and providers. Once you have a clear idea of the features you need from a mortgage, a loan, a credit card or a bank account, for example, you are in a better place to select a product that offers a good deal AND everything you need.
The Financial Conduct Authority carried out some research into consumer perceptions surrounding price comparison sites. It found that consumers who regarded themselves as less financially savvy were more likely to regard the tables and results on the site as ‘recommendations’.
However, they are not recommendations as this is not permitted by the FCA. Instead, comparison sites are simply compiling information in one place that would otherwise take hours or days to sift through. However, no recommendations are being made and consumers need to review all the information available to them from a number of different sources before making a final decision about applying for a financial product.
Feel free to contact providers directly when shopping around
It’s perfectly OK to use a comparison site for research purposes only before finding the providers yourself and checking out their websites for more precise information. Comparison sites can often show information from providers very simplistically. They do this because research suggests consumers are turned off by masses of information.
However, this means that it pays to continue your research on a provider’s own website, looking out for terms and conditions, FAQs and checking for any extra fees and charges that you may incur if you apply with them. These extra checks that you can carry out yourself can help you to ensure you’re not just being seduced by headline rates and offers, and instead understand the product and all the terms and conditions associated with it.
Once you think you’ve found the product that’s right for you, if you need to apply and meet certain criteria, e.g. when applying for a loan, a mortgage or a current account, take the time to establish what these criteria are. Comparison sites will rarely go into details of eligibility as they want as many people to click through as possible.
However, going straight for the ‘apply now’ button would be a mistake for some people whose credit rating is less-than-perfect. Applying for products that you are confident you will be accepted for will help you avoid further damage to your credit rating.
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