Thousands of Brits are looking to take out debt consolidation loans in the coming months but many could end up wasting money by settling for a poor deal, a leading bank warns.

Some 500,000 people are expected to take out personal loans worth some £5 billion by March to help consolidate their debt from credit cards and other loans, according to Sainsbury's Bank.

But it says that many people still assume that they can only take out a single personal loan from the bank or building society which holds their current account.

This means they do not get the best value deals and could end up forking out more to clear their debts.

Steven Baillie, Sainsbury’s Bank loans manager, said: "Consolidating your debts with a more competitive loan could save you hundreds or thousands of pounds in interest so it’s important to shop around to find a competitive rate."

A number of providers have recently lowered the cost of their loans, making it cheaper and easier for those with good credit profiles to manage their debt.

Stuart Glendinning, director of personal loans at comparison site moneysupermarket.com, said: "I have never seen such a frenzy of activity in such a short space of time. Providers are obviously aiming to get the year off to a good start - January is the biggest month of the year for loan applications as consumers look to consolidate debt and sort out their finances.

"The market is now awash with rates below six per cent APR. Speculation of a base rate reduction in the first quarter of this year may have spurred some of this competition."

But he also added that those with poor credit profiles will find it difficult to secure the best deals on a loan.